Check out Virginia Zantow’s earlier coverage of Iowa Student Loan.

DES MOINES (AP) – A nonprofit lender that dominates the state’s college loan industry will stop paying colleges to handle its loan cases.

The Iowa Student Loan Liquidity Corp. has paid about 50 Iowa colleges a combined $1.5 million during the last five years to administer its loans.

However, many colleges are no longer accepting the reimbursements to avoid the perception that their financial aid staffs are steering students toward the lender instead of shopping around.

Iowa Student Loan’s board voted this week to stop payments after a survey indicated most colleges don’t want the money, said Steve McCullough, the lender’s chief executive officer.

“Iowa Student Loan’s board has decided to redirect the funding for this program to other student benefits,” he said in a statement.

Financial arrangements that benefited both lenders and colleges – at students’ expense – have been criticized by New York Attorney General Andrew Cuomo, whose investigation into the loan industry found that some New York schools had been accepting fees based on the volume of loans which they handled from a certain lender.

Grand View College President Kent Henning said his school did nothing wrong by accepting payments from Iowa Student Loan.

“While certainly there was a perception that there was something remiss, these funds are received only after we document time sheets and expense reports,” he said. “In my mind, it was not similar to problems reported elsewhere in the country.”

Henning said the reimbursements provided emergency financial aid for Grand View students who suffered an unexpected loss.

“It’s one less source of funds we’re making available to students who needed it,” he said.

Two of Iowa’s three public universities – the University of Iowa and University of Northern Iowa – have never accepted the reimbursements.

“It certainly presented, in my opinion, if not a real conflict of interest, a perceived conflict of interest,” said Mark Warner, the University of Iowa’s financial aid director.

Iowa State University, which stopped claiming the reimbursements last school year, received nearly $500,000 from the lender between 2002 and 2006.

Last school year, ISU students signed three times as many private loans with Iowa Student Loan than did students at the University of Northern Iowa and the University of Iowa.

Iowa State students earning a four-year degree graduated with an average $32,130 in debt last year, among the highest of any private or public college in the state, according to the Iowa College Student Aid Commission.

Together, Iowa college students graduated last year with the second-highest debt load in the nation, according to Project on Student Debt, an advocacy group in Berkeley, Calif.