New York Attorney General Andrew Cuomo urged Congress to step up supervision of private education lending and said he is widening his investigation of the $85 billion-a-year industry to examine loan criteria.

Private lending is more subject to abuse because it isn’t covered by anti kickback rules in government loan programs, Cuomo told the Senate’s banking committee, chaired by Connecticut Democrat Christopher Dodd. Cuomo also said at the Washington hearing yesterday that lenders may be using improper criteria such as which school borrowers attend to decide whether to grant a loan.

Dodd is the third congressional committee chairman to review the student-loan industry’s practices. Probes by Senator Edward Kennedy and Representative George Miller, like Cuomo’s investigation, have found colleges and their financial-aid officials receiving consulting fees, gifts, and stock from lenders their schools recommended to prospective borrowers.

“The Department of Education was asleep at the switch, but so were the banking regulators, who also must awake and act,” Cuomo, 49, told the committee.

Education-loan providers such as Sallie Mae, the biggest in the United States, are under scrutiny for providing payments and perks to colleges and their officials. At the same time, Congress is considering cuts in federal payments for government-backed student loans to save money.

Cuomo, a Democrat who took office in January, said yesterday that lenders also may be setting more favorable terms for students at prestige schools such as Harvard University, compared with students attending historically black institutions.

“There are civil rights and also legal ramifications,” Cuomo told the Senate Committee on Banking, Housing, and Urban Affairs.

Dodd, a candidate for the Democratic presidential nomination, said he was concerned “that some institutions are being, in effect, redlined.”

Education loans may be more susceptible to redlining, the practice of geographical discrimination in lending, because the field is less regulated than the home-mortgage market, Cuomo said.

Sallie Mae, known formally as SLM Corp., bases lending terms in its private-loan programs in part on the historic default rates at schools, senior vice president Barry Goulding told the committee.

In preparation for the hearing, Sallie Mae examined the loan terms of six historically black colleges. The company found that students at three schools received the lender’s best rate, while those at three other institutions paid between 0.5 percentage point and 1 percentage point more each year, Goulding said.

“Obviously I’m not very happy with Sallie Mae’s answer here, when it comes to making decisions raising the cost of the product for some of the students who can least afford it,” Dodd said later.

“I believe this is a place where the federal government can and should act and they already have the jurisdiction,” Cuomo said. “They chose not to act.”

Cuomo said no federal regulator has contacted him about student loans since he started his investigation.

Information from: www.boston.com

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