Student loan company agrees to cut alumni ties

NEW YORK (CNNMoney.com) -- Student loan company Nelnet reached a $2 million settlement with New York Attorney General Andrew Cuomo stemming from investigations into the company's student loan practices.

Nelnet also agreed to stop paying alumni associations to refer students to their consolidated loans.

Under the settlement, Nelnet agreed to follow a code of conduct outlined by the Attorney General and will contribute $2 million to a fund to help educate college-bound students and parents about their loan options.

In April, Nelnet agreed to contribute $1 million to a similar fund as part of a settlement with the Attorney General of Nebraska. Under that settlement, the company agreed to post a review of its business practices on its Web site but was not required to end its relationships with alumni groups.

Recently, Nelnet agreed to terminate relationships with all alumni groups, according to company spokesman Eric Solomon.

"The New York Attorney General's Code of Conduct effectively reiterates actions the company has already taken with respect to its student loan business," the company said in a prepared statement Tuesday.

"Although Nelnet strongly believes that the outsourcing and alumni consolidation services are valuable services for our customers, proposed federal regulations and legislation also call for the elimination of these programs," the company said.

In a number of agreements with college and university alumni associations, Nelnet paid for the use of school logos in their advertisements, and for placement of company materials on college web sites.

"Alumni associations recommended Nelnet loans because they were being paid to do so, not because the loans necessarily offered the best terms to students and alumni," according to a statement from the New York Attorney General's office.

Nelnet (down $2.24 to $17.48, Charts), one of the largest holders of federal loans, paid the organizations an annual fee or payments for every loan consolidation application an association directed to them.

The company, covered travel and hotel costs for school employees to participate in sponsored marketing events, paid for school financial aid personnel to attend luncheons, dinners, retreats, and gave school employees tickets to sporting events, shows and spa treatments, according to Cuomo's office.