July 24 (Bloomberg) -- The U.S. Senate voted 95-0 to require colleges and student-loan providers to follow ethical guidelines, toughening regulations after some schools received payments and perks from the industry.

The lenders would have to disclose any expense payments to college employees, who would be barred from receiving gifts of more than ``nominal value,'' under to the legislation passed today in Washington. The bill, reauthorizing the Higher Education Act, would also force colleges to explain why they designate ``preferred'' lenders.

Congress, led by a Democratic majority since January, has been investigating practices in the $85-billion-a-year student- loan industry and pushing for more spending as the cost of education rises. To become law, today's measure would also have to clear the House and gain President George W. Bush's signature.

``Our legislation will take steps to ensure that the student-loan system is working in the best interest of students, by pursuing needed ethics reforms in the student-loan industry,'' Edward Kennedy, the Massachusetts Democrat who heads the Senate Health, Education, Labor and Pensions Committee, said today.

Under the bill, companies must refrain from any lending until students receive details of interest rates, repayment plans and the lender's practices in the event of default. Violations may result in civil or criminal penalties.

`Strengthens and Clarifies'

The legislation ``strengthens and clarifies'' regulations, said Terry Hartle, the senior vice president of the American Council on Education, the nation's largest university association, based in Washington.

``Questions have been raised about these relationships, and it is clear we need specific federal policy outlining what is and isn't permissible,'' Hartle said.

Congress and New York Attorney General Andrew Cuomo have found in probes that lenders had undisclosed arrangements to provide colleges or their staffs with payments, consulting fees, company shares and other perks.

The Senate bill would require lenders to send a report annually to the Department of Education disclosing any expense paid to an employee of a college, including money for advisory- board participation or professional development sponsored by the loan companies.

Student-loan companies ``support greater transparency'' and encouraged lawmakers to act, said Kevin Bruns, the executive director of America's Student Loan Providers, a trade association based in Washington.

`Reasonable' Expenses

College employees would be allowed to serve on the advisory boards of lenders, with compensation for ``reasonable'' expenses. The legislation would shorten the financial-aid forms for low- income students.

The House plans to address the Higher Education Act later this year.

Lawmakers have also been considering ways to make college more affordable. The Senate voted last week to provide an additional $17 billion in student loans and debt forgiveness, while the House aims to increase the assistance by $18 billion. The Bush administration has expressed concern that the bills call for too much spending.

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net

Last Updated: July 24, 2007 16:30 EDT