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Calling Out Spellings on Student Loans

April 19, 2007

A day after Education Secretary Margaret Spellings made a major concession to one Democratic member of Congress, another one asked her to do much, much more to rein in perceived abuses in the federal student loan programs.

Spellings announced late Tuesday that, in response to a request from Sen. Edward M. Kennedy (D-Mass.), the Education Department would temporarily bar banks, guarantors and other student loan entities from using the National Student Loan Data System, amid charges that some of them have tapped into the database inappropriately to collect personal information about borrowers for marketing purposes. That revelation, which was first reported in Sunday's Washington Post, was one in a frenetic flurry of charges that have been made in recent weeks amid unfolding investigations by Congressional Democrats and New York Attorney General Andrew Cuomo into possible wrongdoing by lenders, college financial aid officials, and at least one department official.

Spellings made her announcement about the suspension of lenders' access to the database in a letter in which she otherwise strongly defended the department's efforts (which she described as significant) to monitor the student loan industry. That response clearly got the goat of Rep. George Miller (D-Calif.), who heads the House of Representatives Education and Labor Committee.

He issued a statement late Tuesday night saying the secretary had not gone nearly far enough, and on Wednesday, he went further, calling on her to adopt several "emergency reforms," including suspending colleges' use of lists of preferred lenders, ending "bribes paid by lenders," and instructing the inspector general to "investigate all senior Department of Education employees that work on higher education issues to ensure they have no conflicts of interest with student lenders."

And in a conference call with reporters, Miller used often harshly critical language to paint a picture of a student loan industry out of control and to accuse the Education Department of having more or less let it happen through inadequate oversight.

"At the very time that our nation's students are struggling harder than ever to pay for college, it is clear that our nation's federal student loan program has been hijacked by third parties more interested in boosting their bottom lines" than in helping students, Miller said, adding that the industry has been "spinning out of control under the watch of the Department of Education."

At various points in the conference call, Miller:

  • Responded noncommittally to a reporter's question of whether Spellings should keep her job, saying "We don't know yet, and that's what we're going to have to determine."
  • Said that reports that some lenders had given stock and cash to financial aid directors at colleges that recommended the lenders to their students might well amount to "a widespread case of bribery."
  • Accused department officials of ignoring evidence that began mounting years ago that lenders were paying inducements to colleges to encourage them to leave the government's direct loan program. "They were told about this six years ago. Hello, where have you been?"

The decision to restrict lender access to the student loan database is fine and well, Miller said, but it is "very clear that it is time for the secretary to step up and take responsibility for the entire program."

He urged Spellings to take the following steps, which he argued she had the legal authority to do, as "emergency actions:"

  • Impose a moratorium on “preferred lender lists,” requiring colleges to stop using the referral lists for student borrowers "until we can ensure that these lists no longer feed corruption and cronyism."
  • Define and end "bribes paid by lenders," publishing emergency regulations to "clearly define inducements and bribes."
  • Require all institutions and lenders to "immediately disclose any and all relationships that present conflicts of interest."
  • Instruct schools and lenders to cease all conflicts of interest. 
  • Ask the inspector general to investigate all senior department employees in higher education areas to ensure they have no conflicts of interest with lenders. 
  • Make public all records of loan industry meetings with the department's political appointees, "so that the Congress and the American public better understand who at the department was being lobbied by the industry."

Asked why he thought the department might embrace his calls for emergency actions now, when his underlying premise is that its officials have not acted aggressively thus far, Miller said that "if the department cannot understand all of the events that have come to light over the last 60 days and the angst this has got to cause students and families, it is simply out of touch."

He said he was asking Spellings to act rather than introducing emergency legislation to accomplish the same goals because he was "trying to work cooperatively," but said he had approached House leaders about scheduling a vote soon on the Student Loan Sunshine Act, legislation that he and Kennedy and others introduced that would require significantly more disclosure and restrict some of the contested practices (though it would, for instance, limit rather than bar preferred lender lists).

Miller also said he did not intend to ask department officials to testify at a hearing scheduled for next week, at which Cuomo, whose investigation in New York has turned up the heat on the student loan industry, will be the only witness, Miller said.

Spellings did not respond directly to Miller's heated rhetoric or to his calls for specific actions in the loan scandal. In a response released Wednesday evening, Katherine McLane, a spokeswoman for the secretary, responded much more generally to Miller's suggestion that she wasn't putting students' interest first, and noted obliquely that the department has been examining possible changes in the loan programs through a federal negotiating process.

Her full statement read: "The Department of Education has been actively engaged on higher education reform. As Chairman Miller knows, Secretary Spellings convened a commission two years ago that recommended reforms to make America’s higher education system more transparent, affordable and accessible. In addition, the Department has been working with schools, students and the higher education community through negotiated rulemaking to create reforms that work. Rather than abruptly pulling the plug on systems American families rely on, as the Chairman suggests, the Department has taken a more deliberative and comprehensive approach."

Miller's Republican counterpart on the House education committee, Rep. Howard P. (Buck) McKeon (R-Calif.), who headed the panel in the 109th Congress, said through a spokesman Wednesday that he plans to introduce his own legislation to deal with the student loan issues raised in the continuing investigations in New York and Washington. The spokesman, Steve Forde, said that McKeon "shares the concerns of Mr. Cuomo and others," and "believes the Democrat bill (the Student Loan Sunshine Act) is a good starting point."

Forde said McKeon's measure would, among other things, seek to end "revenue sharing agreements" between lenders and colleges and fees paid to financial aid officers to serve on lender advisory boards. He questioned, however, whether ending preferred lender lists makes sense, or would leave students with less information about their loan options. "We need to make sure that in our breakneck pace to reform this industry, we don’t leave students in the dust," Forde said.

 

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