Inquiry Into Student Loans Is Resolved

Citibank, one of the largest providers of student loans, and five universities have agreed to pay a total of $5.2 million to resolve an investigation into their student loan practices, the New York State attorney general, Andrew M. Cuomo, announced today.

Citibank, which provides loans at more than 3,000 colleges nationwide, agreed to pay $2 million into a fund to educate students and parents about the student loan industry. New York University, Syracuse, St. John's, Fordham and the University of Pennsylvania will together repay more than $3.2 million to students who borrowed from companies that paid the academic institutions to steer students their way.

The universities also agreed to adopt a code of conduct governing their relations with student-loan providers. Neither the universities nor the bank admitted any wrongdoing.

"With one agreement, millions of dollars will be returned to thousands of students," Mr. Cuomo said at a news conference today in Manhattan.

The deal follows an investigation of the relationships, often undisclosed, between universities and the student loan companies that help students raise the money to pay for college.

In some instances, loan companies made payments to the institutions linked to the number of students who borrowed. One lender invited university officials to an all-expenses-paid Caribbean retreat. At several institutions, students' questions about financial aid were fielded by call centers that, unknown to the students, were set up and operated by loan companies. Each arrangement, critics say, embodies a conflict of interest.

Lawyers in Mr. Cuomo's office are in various stages of negotiations with scores more colleges and universities, and with other lenders, seeking compensation to students and signatures on the code of conduct, according to officials in Mr. Cuomo's office.

Under today's agreement, N.Y.U. will distribute to students nearly $1.4 million that it received from Citibank over five years. The University of Pennsylvania will distribute $1.6 million that it received over two years. The amounts for the other three universities are much smaller: $164,084 over two years at Syracuse, $80,553 over one year at St. John's University, and $13,840 at Fordham.

Three more universities have agreed to adopt the code of conduct, but are not making any payments under the agreement: the State University of New York system, St. Lawrence University and Long Island University.

Relationships between loan companies and universities are under increasing scrutiny. Lawmakers in Washington have asked for information from loan companies about their ties to academic institutions. Lori Swanson, the Minnesota attorney general, has sought similar information and has called on colleges and universities to disclose payments or other benefits received from student loan companies.

Mr. Cuomo has announced his intention to file a civil lawsuit against one loan company, Education Finance Partners of San Francisco, for paying institutions a fraction of the amount borrowed by students.

The federal Education Department is weighing new regulations that would govern how colleges assemble and present their lists of recommended, or "preferred," lenders. College students usually rely on the lists, rather than shopping around more widely; the payments and other benefits that lenders provide to universities are in exchange for inclusion on the lists.

Under the new code of conduct agreed to by the eight institutions and Citibank, the universities are prohibited from receiving "anything of value from any lending institution in exchange for any advantage," according to a statement from the New York attorney general's office.

Likewise, college employees would be barred from receiving anything of value from lenders, even if they serve on the lender's advisory board.

The universities' criteria for selecting preferred lenders would have to be disclosed. Loan-company employees would not be allowed to work in college financial-aid offices or to identify themselves as college employees or representatives.

The amount each student covered by the monetary settlement will receive will depend on the amount borrowed, according to Mr. Cuomo's office.

At the University of Pennsylvania, the compensation fund would pay an average of $500 for each affected student, according to a statement issued by the university today. Craig R. Carnaroli, executive vice president at the university, said the decision to settle was made "to avoid any appearance of impropriety."

John Beckman, a spokesman for N.Y.U., defended the institution's past practice of accepting a payment from Citibank equal to a small fraction of the amount of money borrowed by its students. That money was used to provide financial aid to students, Mr. Beckman said.

"While we and the Attorney General's Office do not see eye-to-eye on this, we were able to agree on an industry-wide code of conduct, particularly as many of recommendations in the code are practices in which N.Y.U. already engages," Mr. Beckman said in a statement.

In describing the decision to sign the code of conduct, Daniel F. Sullivan, president of St. Lawrence University, emphasized that his institution did not receive payments from lenders for loan volume, and therefore it would not contribute to a compensation fund. In a statement, he said, "We agree with the Attorney General that ethical conduct and avoidance of conflicts of interest are required with regard to student financial aid policies and practices."

David Henahan, a spokesman for the State University of New York, also emphasized that "no finding of deceptive or illegal practices has been made against any SUNY campus." He added, "The code of conduct will strengthen the confidence of students and parents in college lending practices."

Robert Altholz, vice president for finance at Long Island University, expressed a similar view, describing the agreement as "reasonable and fair" to the institution and students.