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April 26, 2007
Mr. Cuomo Comes to Washington
New York Attorney General Andrew M. Cuomo was in friendly territory at Wednesday’s hearing of the House of Representatives Committee on Education and Labor, whose Democratic leaders, long critics of the student loan industry, are responding to Cuomo’s high-profile investigation of lender-college relationships with their own push for federal legislation and tougher oversight by the Education Department. Since Cuomo was, after all, the sole witness at the hearing, all eyes were on him as he outlined his findings, faulted the federal government for lax scrutiny — and hinted that criminal charges might be a possibility.
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The controversial practices he has unearthed — including colleges sharing revenue with lenders based on their volumes of student loans, conflicts of interest in determining which lenders wind up on lists of “preferred lenders,” and a small number of financial aid officials holding stock in loan companies to which they refer students — elicited from Cuomo and lawmakers some harsh words and phrases: “monopoly,” “predatory lending,” “illegal activity,” “kickbacks” and “on the take,” among others. The private loan industry, as Cuomo put it, is “an area that has been, to date, the Wild West” and, as the biggest growth area, the focus of his inquiry.
Moving beyond mere description into the realm of figurative language, members also wielded a metaphor or two. Rep. Rubén Hinojosa (D-Texas), who is also on the financial services committee, compared the effects of college lending practices to home foreclosures as a result of certain mortgages, and called for increased financial literacy for high-school students and their parents to navigate the complex web of financial aid options.
The proverbial bogeyman (or bogeywoman) was there in spirit, too, as Cuomo and the committee’s members minced no words in expressing their disdain for what they saw as the Department of Education’s failure to keep the relationship between colleges and lenders under scrutiny. “Part of the reason the practices we have uncovered have been able to flourish nationwide over the past several years is because the U.S. Department of Education has been asleep at the switch,” Cuomo said. “The practices we have uncovered were not undiscoverable until now. Rather, the entity charged with maintaining the integrity of the student loan market failed.” The implication, as expected, was that the current crisis came as a result of the Bush administration’s supposedly lackluster oversight for the past several years.
Members of the committee took turns showering praise on Cuomo and questioning how to proceed. The attorney had clear ideas about that, too, and threw in his support for the Democrats’ Student Loan Sunshine Act, sponsored among others by the committee’s chair, Rep. George Miller of California. Miller said that his committee’s own investigation, as well as Cuomo’s testimony, would help him “build on this bill” and possibly expand it. Current provisions of the proposed legislation include requiring full disclosure for “special arrangements” between lenders and colleges, and banning most gifts to university officials.
As committee members questioned their witness, they also, as is often the case, used him as a sounding board for their own ideas. Doesn’t it make more sense to stick solely to the federal direct loan program, in which students borrow directly from the government? What if we required colleges to publicize all lending institutions? Should we boost financial literacy?
Rep. Ric Keller (R-Fla.), for one, was concerned that his constituents might worry about Cuomo’s efforts resulting in banishing private loans entirely. Cuomo didn’t express a preference either way, but Keller wanted permission, he said, to tell them that Cuomo — a former Clinton cabinet housing official — wouldn’t necessarily advocate for a shift such that all federal loans were distributed through the government’s direct loan program, which competes with the guaranteed loan program that lenders dominate. “Can I say that?” Keller asked. “You can say that I’m a non-policy maker,” Cuomo offered. “So we have a non-policy maker,” Keller quipped.
But while he insisted on remaining neutral on that issue, Cuomo was outspoken about the Department of Education’s role, as well as what he saw as the proper role of quick federal action to prevent further and future abuses, which Miller called for last week. The department, he said, should not only enhance its oversight of federally guaranteed loans, but should extend that oversight to private loans, which it currently lacks the power to do. He noted that industry was ahead of the government in this case — already on the path to reforming itself and restoring “trust in the system,” although those steps, like settling with the state, came as a result of the public pressure from Cuomo’s investigation. But he maintained that federal action was necessary. “The schools and the lenders are ready to change their actions,” he said, but the government needs to “just give them the guidance and the standards” to do so.
Cuomo also said that his office has issued subpoenas. Rep. Buck McKeon (R-Calif.), at one point, asked Cuomo to clarify whether he thought most financial aid administrators “are acting in interests that are not best for the students,” something McKeon asserted not to be true. Cuomo agreed that the “vast majority of schools” are not involved. But later in the session, and in a news conference afterward, Cuomo seemed not to rule out that this was the tip of the iceberg. “The more work we do, the more work we find we need to do,” he said. “It is a culture.”
Meanwhile, the Republicans on the committee, led by McKeon, the panel’s former chairman, presented their own solution, a bill called the Financial Aid Accountability and Transparency Act, which seeks some of the same measures as the Democratic version. One provision that might rankle Democrats on the committee, while seeking a compromise, is that colleges must “adopt a formal written policy about how it selects these lenders,” including direct federal loans; the Democratic version encourages students to seek federal loans first. The Republican bill also would require colleges to create and commit to their own codes of conduct for lending practices, and ban revenue sharing for private loans. But over all, the Republicans were much less willing to adopt regulations of the private loan industry, even if members of both parties, and Cuomo, agreed that competition was key to making loans fair.
Secretary of Education Margaret Spellings, whose own testimony on the loan scandal before the House committee on May 10 was announced Wednesday, didn’t wait until then to have her say. In a statement Wednesday, she challenged many of Cuomo’s assertions, saying, “We have taken a number of steps to tighten our oversight responsibilities of federal student financial aid programs under existing regulations and within the authority the department has been given through the congressionally mandated process for issuing new regulations.” Attempts to strengthen department regulations through negotiated rule making ended in an impasse last week, and Spellings has announced an internal panel to look into possible policy changes.
Cuomo interrupted the news conference he held with Miller after the hearing to announce that, as the session was occurring, the Republican-controlled New York Senate had passed a bill he had jointly developed with legislative leaders, which would put in place for all colleges in New York the “code of conduct” he has been negotiating one by one with colleges. Among other things, it would bar revenue sharing between colleges and lenders as well as prohibit gifts to campus officials.
In other developments and announcements related to the loan controversy Wednesday:
- Bank of America and JPMorgan Chase have agreed to Cuomo’s “Code of Conduct” for lenders — meaning that with Citibank and Sallie Mae, which already adopted the code, the top four loan originators will now abide by the voluntary rules of conduct, many of which the House committee is seeking to codify into law.
- Johns Hopkins University also agreed Wednesday to adopt the code of conduct, and said it would end all of its preferred lender lists, in response to its continuing investigation into monetary benefits its financial aid chief received from lenders.
- Cuomo said his office was looking into credit card companies’ practices with college students, and the relationship, if any, between educational institutions and those companies.
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Comments
euphoria on capital hill
A certain ‘euphoria’ seems to gripped Capitol Hill in light of the recent student loan scandals — but it is really more like a dense fog that only obscures vision.
The reality is that the trickle-down effect of the proposed student loan reforms for those actually holding loans is minimal, and the gesture would be merely symbolic for them.
The real benefit accrues to the politicians through increased face-time and media exposure, and not the students.
This focus on surface issues also obscures the underlying threat posed by credential inflation, the engine that drives students and their families to take on more and more debt to gain access to the American Dream.
Until policymakers begin to grapple with the real problems that plague higher education, we will continue to be subjected to side-show theatrics in lieu of meaningful discussion about ways to help students. Discussion about how to shorten the ever-lengthening education pipeline would be a good start.
I’m not saying that corruption in the “Wild West” of the student loan business isn’t something to be concerned about. Of course this needs to be addressed, but the conflicts of interest complained of here are dwarfed in comparison by the structural contradictions of having institutions accredit themselves through their guild memberships, through their peer-review, through their own self-study.
These are all ridden through with conflicts of interest that are structural givens, not just the unfortunate exceptions we are hearing about lately.
Glen S. McGhee, Dir., at Florida Higher Education Accountability Project, at 9:25 am EDT on April 26, 2007
I’m somewhat intrigued at how different in tone this article’s synopsis of events is to one I read from NCHELP late yesterday.
Intrigued, at 10:15 am EDT on April 26, 2007
Corruption
If Cuomo gets bored with the student loan industry after awhile, perhaps he could keep up his media “face-time” by taking on university professors and the publishing industry over textbook prices. That little game has always smelled a bit stinky.
BD, at 12:35 pm EDT on April 26, 2007
A new day, a new settlement for the NYSAG, how nice. If it looks like extortion and acts like extortion then there is a possiblity that this is extortion. Hopfully there will be follow up articales regarding how the now more than ten million dollars being handed over to make this “go away” will be spent.
UR the FAD, at 1:35 pm EDT on April 26, 2007
NYSAG Cuomo should be ashamed of the politcal game he is playing at the expense of financial aid officers. The fact that he served on the cabinet of the administration that developed Direct Lending, and he is now trying to tear down its competitor FFELP is very much a conflict of interest. Cuomo knows he is creating a panic amongst the aid industry, and he seems to be enjoying this power he is holding over a bunch of folks who work very hard to uphold the laws and regulations set by the Dept. of Education. These folks don’t get paid a lot to do this, and every single day at most of these universities at least one person is yelled at or cussed out by some unhappy parent or student because of the lack of funding. This isn’t the aid office’s fault and it certainly isn’t the fault of direct lending or ffelp lenders. I honeslty don’t know where the fault lies for the lack of funding, is it the tax payers? Or is it the politicians we elect? Probably not. It could be as simple as it is just getting tougher to come up with money to counteract with the rising cost of higher education. We need to stop using tax money for wild goose chases and use it to focus on how to educate parents save for money for their children’s education, or even help them plan and find finacial alternatives. I do know that the aid officers in this country have a very tough and thankless job....Cuomo’s witch hunt is making those jobs harder by casting doubt on these hard workers.
hmmmmm..., at 5:45 pm EDT on April 26, 2007
extortion? compared to what?
Cuomo might be pinching a few pennies from the lenders; the schools who settle, doubtless with high-wattage counsel of their own, probably realize that a challenge is hopeless. This isn’t extortion; it is an acknowledgment of violating, at least, the spirit of Title IV. Don’t worry too much about the schools or lenders involved; the punch bowl was around long enough for each to get their share.
hmmmmm is right about a great deal, but stops right at the doorstep of the real problem. Yes, aid administrators work for unfairly low wages, they are skilled and dedicated; sadly, it’s a rare day someone isn’t boiling mad at them.
Yet hmmmmm takes at face value that government/lenders/parents aren’t doing enough to meet ‘the rising cost of education’.
IT IS COST THAT IS OUT OF CONTROL. IT HAS BEEN FOR MANY YEARS. If schools don’t wake up to this soon, they’ll find that manufacturing, call centers, and programming aren’t the only things that can be outsourced abroad.
finaidfollies, at 8:15 am EDT on April 27, 2007
IS THE PROBLEM FIX MR FOLLI
Mr Finaidfolli, I have to wonder if you also blame lenders for the rising cost of automobiles, houses, and on and on?
I wonder if you read the email from the person from another recent response called is it fixed? If you haven’t, here it is for your review.
Ok, lets review.
1.Take away the revenue lenders receive from the federal government on Stafford Loans. ? Did this reduce the amount of loan the student will borrow on their education?
2.Remove all lender list. ? Did it reduce the amount of loan the student will borrow on their education?
3.Turn loans over to 100% DL.? Did it reduce the amount of loan the student will borrow?
If you answer NO to all 3 questions, then what the heck is going on here?
On the first question if you take away the subsidy that the fed pays the lenders, then stop charging the lenders the millions of dollars that you charge to partake in the program. How is the government going to make up for all that money once it is gone by removing the lenders?Anyone thought of that?
If you remove lender list from schools, you will have DTC lenders pop up from out of India to solicit to students and it will be a schools nightmare to manage.
Then if you turn all loans over to DL as the feds lose all the money they are getting from lenders for the program, or if they get into a budget crisis, what do you think will be the first area cut? Education. It is cut into everytime already.
All our efforts here will not change one thing when it comes to student borrowing and will only make a more complex financial aid system even more messy.
Finaidfolli I am going to bet you are a DL school. Seems DL folks have a lot to say about a ffel problem.You have been mislead and deceived into this stinking thinking about ffel.However,do your students write a big fat check for the difference in cost at your school after they have used all their DL eligibility or are one of those terrible lenders helping them fulfil their education? If it werent for those horrible lenders, you wouldn’t even have a job my friend so you need to think about that.
One more thought, for all the DL fans out there, as you brag about not using lender list on your campus, have you disclosed to your students that the reason you don’t is because you don’t allow them the choice of a lender? You force them into a loan that is the most costly to them and the least beneficial. Talk about being deceiving.Why isn’t anyone saying anything about that?Why is it National headlines that schools are using certain lenders and pushing all students to those lenders but not one word is being said about DL not even putting a choice of a lender in front of their students.Grad students are getting the biggest raw end of the deal with thousands of dollars being taken from their loan funds by the federal government to subsidize their loan while at a ffel school that same Grad student the lender would have paid that on their behalf. NO ONE IS TELLING THAT SIDE OF THE STORY. Why is the question.
I think this person made a good point in saying that none of what is going on here is going to change one thing about the amount of debt students are having to apply for.No student can apply for more loan money than their budget allows them.A budget set by the federal formula. NOT a lender formula. There are programs out there that reduce Stafford loans by anywhere from 2% interest rate reduction to 0% interest rates for the life of the loan. Please tell me how that is not working in the interest of the student mr folli?Tax payers win when students pay their student loans in full and the gov does not have to cover that.
Fix the problems and stop wasting tax payers money on all this stupid political grandstanding.
Also, if Mr Cuomo was truly a part of the creation of Direct Lending, someone needs to bring that into light because that is truly a conflict of interest.Lets talk about all the millions of dollars DL has taken in and where it is and why the program is over 11 +Billion dollatd in debt currently.Tell me tax payers are ahead in that program and tell me how?
ka, at 10:35 am EDT on April 27, 2007
gosh ka you’re really holding my feet to the fire
...so let’s take a look in turn.
Before your kind repost of a different thread, you make it sound as if I blamed lenders for higher costs. I have done no such thing. I HAVE referred to lenders as enablers: schools have a more or less unchecked ability to raise prices (unchecked as long as other competing colleges are doing the same).
Cars and houses are in fact good examples here. Their prices have in fact risen above the cost of inflation for the past fifty years, but not at DOUBLE THE RATE OF INFLATION as higher education has. But don’t take my word for it: look up the recent College Board report on this subject.
Cars are infinitely safer, less polluting, more energy efficient, and more comfortable than their forebears. Housing per-unit costs are higher, but the average square footage of housing has gone up, mitigating much of the increased price. Moreover, you build equity in housing over time, and with a bare minimum of smarts realize a profit for yourself.
For the increased cost in higher education, I’m unconvinced that we’re getting smarter graduates. We certainly are getting more wellness centers, sleek buildings, fancy athletic facilities, and a host of costly ancillary capital projects, much of which is either baldly intended to raise revenue (see: athletics), or compete for better admissions candidates. This at a time when technology, which should be the model that postsec ed pursues, makes information sharing and management easier than ever in a regime of constantly plummeting prices.
OK ka, as you say, let’s review.
1. You imply that I advocate that we ‘Take away the revenue lenders receive from the federal government on Stafford Loans.’ I challenge you to show where I have said such a thing. Even if we did this, you point out that we wouldn’t reduce need. Thank you for agreeing that the central problem is cost.
2. Show me where I ever advocated removing the lender list. This business is confusing enough for aid professionals. I have a lot of sympathy for parents and students having to grapple with this mess. A good list is a good service. A bad list can be a bad service for any number of reasons.
3. Show me where I advocated a switch to DL. There are problems with FFELP, there are problems with DL. Sweeping glaring reconciliation gaps under the rug in DL? No problem!
You are quite right that students at DL schools have no choice. They emphatically should have choice of lender.
There are, to be sure, some excellent borrower benefits out there. If anything, lenders have finally glommed on to the idea that borrower benefits encourage, SURPRISE, more borrowing. To focus on how sweet these loans are without thinking about ABI now reaching $18k for the average graduating senior is irresponsible.
Bottom line, ka: don’t put words in my mouth. And look at the bigger picture in more ways than one.
finaidfollies, at 1:05 pm EDT on April 27, 2007
PS, KA:
...Cuomo was HUD secretary during the Clinton Administration and didn’t have oversight of Title IV in his portfolio.
Oh, and the FDSLP was launched during the administration of Bush (41).
Not that this matters. Unless facts matter.
finaidfollies, at 3:10 pm EDT on April 27, 2007
Is it fixed
Well Mr Folli, the question was more about asking if we did all of these things (not saying you were saying that at all) is it fixed? All of this is not fixing one problem of students borrowing max loans and in some cases for educations they can’t even find employment for. However that is another story another day. My question was more about the other persons asking “is it fixed” and is any of what Cuomo is wanting to charge against schools and banks fixing the real problem? Also, I didn’t say Cuomo served on the administration for FDSL, hummmm did above and I said if it is true then someone needs to bring that into light. Also, I never said anything about who’s presidential administration it was under. So sounds like you are putting words in my mouth. But at least all who are reading this got out of you that you are not totally one sided towards DL because it sure seemed that way to me as I read your statements. Whew, glad I was wrong about that. Maybe if it was allowed and it cost less than ten dollars, we can find a lender to buy us a drink at NASFAA. I wonder when the last time Cuomo or Kennedy had a ten dollar meal? Good question to ask them.
ka
ka, at 12:45 pm EDT on April 30, 2007
Cuomo Service
Mr Cuomo’s resume may not exactly say he served on the FDSL board but what his resume does say is that he served all 8 years for Clintons on numerous interdepartmental assignments. If someone can find all of those assignments then we may know. I do see that he received awards from both the Ford Foundation and the Kennedy School of Government.
Also Congress created a direct lending pilot program in 1992. In 1993, newly elected President Clinton proposed replacing the guarantee program with the direct approach as part of his deficit reduction plan. You can find that on this link. Bush signed into law how guarantees would work but under Clinton’s administration is where the DL program became live.
http://www.newamerica.net/program...on_policy/student_loan_watch/history
dj, at 1:55 pm EDT on April 30, 2007
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Here is a thought, lets create another cabinet level postion with assitants and multiple other postions that can over see all the new rules which congress is going to pass so lenders and financial aid officials can’t communicate with each other, and their customers.
Before we do that, I wish the congress would add up what it is costing in tax payer dollars to find all this “wrongdoing” my guess is that it is costing the taxpayers much more then the amount of “wrongdoing” that is taking place. Wasting of taxpayers money ought to be the next investigation.
I believe if you find a school doing somethng wrong then punish the school, not the system. After all congress created this system. Has anybody investigated why the system was created? I think if it is, one would find a political answer.
Lets all stand up and cheer for more regulation. Just remember it will drive up the cost of administering a loan program which right now is very confusing and very costly to administer (compliance) at the local level. Most colleges and universities are not blessed with enough staff members to deal with all the student issues. In our case we average 531 FTE per staff in the financial aid office. We try to give good service, but the government by adding more rules, regulations and unfunded demands keep making it very hard. Look at the ACG and SMART grant and the amount of auditing it takes to adminsiter these two new grants, not to mention, the customer compliants from non PELL eligible students who want to know why they do not qualify. The answer sounds easy, but it is not.
So, more regulation on the loan issue is not the answer, enforce what we have, penalize those who take advantage of the system.
Oh well, as the movie says “Tomorrow is another day.”
Jim, at 8:20 am EDT on April 26, 2007