Andrew M. Cuomo, New York's attorney general, announced Thursday that he planned to bring a civil lawsuit against a student lending company for deceptive business practices, accusing it of paying colleges and universities to steer student borrowers toward its loans.
Cuomo's action, which would seek to bar the practice and to recover money from the company, Education Finance Partners of San Francisco, stems from an investigation of relationships between colleges and universities and the companies that lend money to students.
Lawmakers in Washington, including Sen. Edward M. Kennedy, D-Mass., who heads the education committee, are also looking into these ties.
Cuomo said his office was also talking with universities about adopting a code of conduct to govern relations with lenders, including the payment arrangement that some refer to as "revenue sharing."
"We believe these revenue-sharing agreements are really no different than kickbacks," Cuomo said at a news conference at his office in Manhattan. He added that his office believed the payments were illegal under New York law, which would arguably apply to the company because it extends loans to students in New York and markets its loans here.
Tamera Briones, the chief executive of Education Finance, said in a statement that the company had been cooperating with the attorney general's investigation. She defended the payments to colleges, saying they did not affect the terms of the loans. "The price to the borrower is based on the borrower's risk profile," Briones said.
She added that the payments to colleges could support financial aid to needy students.
Briones criticized the attorney general's office for rushing to file a lawsuit before all the facts were known. "We question whether the attorney general's office is seriously interested in learning all of the facts and whether there has been an actual violation of law," she said.
Cuomo said more than 60 colleges and universities nationwide have received payments from Education Finance through arrangements in which colleges and universities receive money based on how much students borrow. The payments create a conflict of interest for university financial aid offices, Cuomo said, because they are an incentive to steer students to a lender for reasons unrelated to loan terms.
On Wednesday, Kennedy, who heads the Senate Committee on Health, Education, Labor and Pensions, sent a letter to several large student loan companies, including Sallie Mae, Citibank, Bank One and Bank of America, asking that they detail their financial relationships with educational institutions.
"When students take out loans to pay for college, they should be assured that the relationship between their school and their lender is free of bias or conflict of interest," Kennedy said in a statement.
Among the institutions that have received payments from Education Finance are St. John's University, Long Island University, Boston University, Clemson University and Baylor University, the attorney general's office said.