NEW YORK (CNN/Money) -
The California attorney general's office is looking into allegations of consumer fraud at student loan financing firm Sallie Mae, according to a report published Tuesday.
The Financial Times reported that investigators are looking at Sallie Mae's private loans to schools that did not have accreditation, the lender's relation with schools and whether students were misled about private loans that Sallie Mae offers. The newspaper said investigators are looking into whether students had the differences between those loans and federally-backed loans Sallie Mae services explained to them.
The newspaper also reported that Sallie Mae acknowledged that it has received questions from state investigators about how it disbursed funds on private loans to students attending for-profit schools that have closed. California's attorney general is Bill Lockyer.
Sallie Mae, which is formally known as SLM Corp., was created by the U.S. government as a response to problems in the Guaranteed Student Loan Program. It started operations in 1973 to fund student loans and was later converted to a publicly traded company. It is in the process of being privatized, a process that is expected to be completed by 2005, three years ahead of schedule.
The newspaper reported that in addition to the federally-backed student loans, the company has become a leader in higher-risk, higher-margin lending directly to students, who can pay 7 percent and as much as 25 percent for some loans, rather than less than 4 percent for federally-backed loans. The newspaper said Sallie Mae's private loan business is up 41 percent to $10.8 billion.