UPDATE 2-Nelnet agrees to a $2 mln settlement with New York

(Adds response from Nelnet)

NEW YORK, July 31 (Reuters) - New York Attorney General Andrew Cuomo said on Tuesday that Nelnet Inc (NNI.N), the leading consolidator of student loans, had agreed to pay $2 million as part of a settlement that ends a broad investigation into its business practices.

Cuomo, as part of his sweeping probe into the $85 billion a year student-loan business, had accused Nelnet of making payments to college alumni groups in exchange for getting loan referrals. As part of the settlement, Nelnet agreed to stop making these payments and to adopt other reforms.

Nelnet previously agreed to pay $1 million to settle an investigation by Nebraska's attorney general. The $2 million under the New York pact will be paid into Cuomo's fund for educating high school seniors about financial aid.

"We have fully cooperated with the New York Attorney General's inquiry, and in order to put it behind us and move forward, Nelnet has agreed to abide by his code of conduct," Nelnet said in a statement.

In late trading on the New York Stock Exchange, Nelnet's shares fell $2.40, or 12 percent, to $17.32, a three-year low.

Cuomo's code of conduct bars lenders from having financial relationships with schools, such as providing cash or perks in exchange for referrals.

Nelnet has said it would stop marketing loan consolidating through alumni groups and would consider shedding its business of providing call center staff for schools.

Nelnet stock is down 47 percent over the past year, as state regulators challenge industry practices seen as harmful to students. Federal lawmakers, meanwhile, have taken aim at U.S. government subsidies paid to student lenders.

Earlier on Tuesday Nelnet posted second-quarter earnings from continuing operations of $21.7 million, or 44 cents a share, falling short of expectations by a wide margin. Net student-loan assets rose 10 percent to $26.2 billion.

In May, Cuomo's office issued subpoenas to 90 alumni associations seeking information about their financial agreements with Nelnet. The queries marked a new front in New York's investigation into the financial relationships between lenders and schools, which play an influential role by recommending lenders to students.

Since February, the state has targeted 20 lenders and more than 60 schools for relationships that Cuomo has called deceptive and which may put the financial interests of schools ahead of the needs of students. (Reporting by Joseph Giannone)