Sallie Mae and Nelnet Named in NJ Investigation

Sallie Mae and Nelnet must be wondering if they paid too much in "campaign contributions"--or not enough. Part of the latest on Loangate from Inside Higher Ed:

Until now, the evolving controversy surrounding the federal student loan programs has focused mostly on the relationships between lenders and colleges and between lenders and federal officials. But now state guarantee agencies are being drawn into the fray, with Friday’s announcements that Sen. Edward M. Kennedy and New Jersey’s attorney general were investigating arrangements in which two lenders paid that state’s student loan guarantor millions of dollars for loans that the agency helped direct the lenders’ way.

Kennedy’s office released documents Friday showing that the New Jersey Higher Education Student Assistance Authority, one of 23 state-based agencies that guarantee loans provided by private lenders in the Family Federal Education Loan Program and provide a range of other services to colleges and students, had arrangements with Sallie Mae and the National Education Loan Network in which it received a cut (1.4 percent and 1 percent, respectively) of the volume of each loan referred to the lenders by the state agency.

The agreements, which the state agency ended on April 20 as scrutiny of the arrangements grew, has since 2000 brought the state agency $2.2 million a year from Sallie Mae and a lesser amount from Nelnet, according to The Star-Ledger of Newark, which first reported on the arrangements last week.

Kennedy and officials in the New Jersey Attorney General’s office said they would investigate whether the incentives paid to the state guarantor led it, or the colleges with which it works, to direct student borrowers to Sallie Mae and Nelnet rather than to other lenders from whom they might have received lower rates or better benefits.

The underlying implication of the entire student loan controversy to date has been that students are being hurt by being forced to pay more for their loans, although the lawmakers — members of Congress and attorneys general in various states, notably New York — have produced little evidence along those lines to date, focusing instead on revealing the relationships and questionable arrangements. . . .