A three-and-a-half-year partnership between a national for-profit college loan company that has been under fire for questionable business practices and the nonprofit Rhode Island Student Loan Authority has been dissolved, the authority announced this week.

The mutual decision was prompted by recent changes to federal law that make college lending less lucrative for for-profit companies, such as the Nebraska-based Nelnet that came to Rhode Island in 2004.

RISLA officials say the authority will take back its student-loan business and continue to offer low-interest loans to college students. RISLA, a quasi-public agency, also offers interest-free loans for teaching, nursing and pharmacy students, scholarships to about 100 low-income college students and runs a free college planning center.

In a complex $13-million deal signed in March 2004, Nelnet bought a portion of RISLA’s existing loan portfolio for $5 million. Nelnet paid an additional $8 million for 10 years’ worth of future federal Stafford loans and the right to establish a foothold in the desirable southern New England college market.

“We will be able to protect our programs,” said Noel Simpson, RISLA’s executive director. “We are rolling back the clock, as it were, and our board and staff here are very excited about providing Rhode Islanders the best college-access programs in the country.”

Students and their families should notice no difference. The change will not affect the low-interest rates that were offered by Nelnet’s Rhode Island branch, the New England Student Loan Authority, Simpson said. The 22 employees who left RISLA to work for Nelnet will return to their previous jobs, Simpson said.

Under the terms of the separation, RISLA has agreed to return $4.1 million of the $13 million Nelnet paid RISLA since 2004, representing the estimated value of six years of future federal Stafford loans — the balance of the 10-year agreement.

About $12 million of the Nelnet money helped to boost the state scholarship fund overseen by the Rhode Island Higher Education Assistance Authority over the past few years.

Nelnet has agreed to continue to finance a separate scholarship grant program for low-income students overseen by RISLA, the Paul V. Sherlock Scholarships, and pledged $600,000 to the program for the next six years.

Shortly after Congress signed a new law last month that reduced government subsidies to private lenders, Nelnet announced it was laying off 400 employees nationwide and closing offices in a half-dozen cities, in an effort to cut expenses by at least $25 million.“In light of the recent change in legislation affecting our industry, Nelnet and RISLA agreed to end the … relationship,” said Nelnet spokesman Ben Kiser.

“The legislation is having a very significant impact on the student-loan industry.”

Congress changed the law after months of investigations and controversy that exposed questionable business practices by Nelnet and other private lenders.

A year ago, a federal audit revealed that Nelnet had exploited a loophole in federal law and had been receiving hundreds of millions of dollars in “overpayments” by the federal government. In a separate investigation of Nelnet’s business practices by the New York attorney general’s office, Nelnet agreed this July to pay New York $2 million as part of a settlement.

As controversy about private lenders gathered steam earlier this year, the fact that Nelnet was running RISLA’s free college planning center came to light. State Treasurer Frank Caprio called the arrangement a “potential conflict of interest,” and RISLA’s board moved quickly to take back the center.

Yesterday, Caprio said the time was right for RISLA to resume the student loan business as well.

“RISLA’s mission will continue to be very focused on making college affordable and accessible for Rhode Island students,” Caprio said. “There will be no disruption in the team carrying out that mission.”

As part of the split, Charles Kelley, who had moved over from RISLA to run Nelnet’s Rhode Island branch, will return to his job as executive director of RISLA. Simpson has agreed to return to his former position as chief financial officer of RISLA.

When he left the job in 2004, Kelley earned about $116,000. He said in May that his salary increased with Nelnet but refused to say by how much.

Later this month, RISLA’s board will vote on Kelley’s new salary at RISLA. “But it certainly won’t be as much as it was with Nelnet,” said Anthony J. Santoro, the board chairman.

jjordan@projo.com