A state agency broke federal regulations when it received millions of dollars in improper payments from companies that make student loans and offered colleges enticements to promote those lenders, according to a national report released yesterday.

Amid the massive student loan scandal, U.S. Sen. Edward Kennedy made public a committee report criticizing a deal between two lenders, Sallie Mae and Nelnet, and the New Jersey Higher Education Student Assistance Authority. The report also unveiled more marketing misconduct among colleges, lenders and alumni associations across the country.

Kennedy, the Massachusetts Democrat who chairs the Senate Health, Education, Labor and Pensions Committee, said the findings "underscore the urgent need for reform of the student loan system."

On the same day the Senate committee report came out, New Jersey Attorney General Anne Milgram announced a code of conduct barring state colleges and universities from having financial relation ships with student loan providers.

Unknown to borrowers, lenders were making donations to colleges and offering special private loan funds for certain students as a way to get schools to steer loan appli cants to them. Critics have said those practices may have prevented students from getting the best deal on their loans.

Loan industry watchdogs also have said rules prohibiting induce ments and revenue-sharing ar rangements are clear and the federal Department of Education should take responsibility, investigate and sanction offenders.

"This is another example of how the department has failed to regulate the student loan industry," Steve Burd of the New America Foundation said yesterday. In addi tion to the New Jersey contracts, Kennedy's report unveiled "evidence of bribes offered by banks and shakedowns by colleges" in other parts of the country, he said...

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