If the air seemed to be going out of the multifaceted controversy over college student loans, Wednesday pumped it back up. The day produced three noteworthy developments:

• New York Attorney General Andrew M. Cuomo issued a new salvo in his six-month investigation into relationships between colleges and lenders, this time aimed at university athletics departments. Cuomo sent subpoenas or information requests to 39 colleges asking for information about their arrangements with University Financial Services, a student loan consolidation company that had a revenue sharing agreement with Dowling College in which its athletics department marketed loans to students and the public through its Web site. The inquiry is examining whether other universities with apparent relationships with the lender -- including Auburn and Rutgers Universities and the Universities of California at Los Angeles, Kansas and Louisville -- also receive revenue for loan referrals.
• A Government Accountability Office study concluded that the U.S. Education Department has done little in the form of "proactive" oversight of possible "illegal inducements" from lenders to colleges and their officials, depending instead on complaints to identify potential violations. The GAO also found that the department had sought to sanction only two lenders for such violations in 20 years. While Congressional Democrats seized on the report as evidence of mismanagement, department officials generally accepted the findings and recommendations but noted that their powers have historically been limited by federal law.
• The Senate Committee on Banking, Housing and Urban Affairs approved legislation that would significantly expand the federal government's oversight of private student loans, but do so in a way that lenders as well as advocates for students can live with. Among other things, the bill would require significantly more disclosure to prospective borrowers about the terms of private loans and stop colleges from "co-branding" private loans to make them look like they come from the university.
• One private lender that has been under scrutiny, EduCap, laid off a significant number of its workers and may be closing its loan business, The Washington Post reported today. EduCap, which does business as Loan to Learn, has been under review for how the nonprofit lender compensates its executives, among other things, and it was forced to cancel a conference in Nevis last winter to which it sought to bring, at no cost, college financial aid officers and a guest. A spokesman for EduCap told the Post that the company was restructuring " due to uncertainties in the student loan industry and financial markets."

Amid recent warnings from Cuomo's office that the attorney general might be looking to expand its inquiry into conflicts of interest beyond student loans into other university-vendor relationships, on Wednesday the New York official took one tangent of the student loan investigation and followed its path.

Dowling College, a private institution on Long Island, was among the colleges that settled with Cuomo over its student loan policies. Among the practices Cuomo cited was an arrangement in which the athletics director struck an agreement with University Financial Services in which he agreed to market the company's loan consolidation services on the athletics department's Web site and at college events, and to let the company use Dowling logos and colors to market the loans. In return, the company agreed to pay Dowling $75 for every loan application it received as a result. Dowling ended the arrangement -- through which it never received a dime -- as part of its settlement with Cuomo.

Cuomo's office has identified 39 other colleges that appear to have relationships with University Financial Services; their sports departments' Web sites, in most cases, contain advertisements (like these for Arkansas State University and the University of Pittsburgh) that incorporate the universities' mascots or logos or names into marketing materials for the company ( "Call 1.866.GO.PITTLOAN").

The attorney general sent requests (or in some cases subpoenas) to the institutions asking for information about the arrangements, to help Cuomo's office determine if they, too, are receiving payments for loans they refer to the company.

“Students trust their university’s athletic departments because so much of campus life at Division I schools centers around supporting the home team,” Cuomo said in a news release. “To betray this trust by promoting loans in exchange for money is a serious issue, especially when Division I schools already generate tremendous revenue from their student athletes. Today’s action is an important new step as we continue to examine the unethical conflicts that pervade the student loan industry.”

Late Wednesday night, Arkansas State released a statement acknowledged that its sports booster group, the Indian Club, had had a sponsorship agreement with University Financial Services, but that the university had learned of the deal in February and ordered it canceled. The statement said the university believed the arrangement had been ended, although an ad for the lender remains on the athletics department's Web site.

Officials at several of the other institutions that received the Cuomo missives said they were reviewing the information requests. John Fedely, associate director of news at Pitt, said its officials were conducting their own investigation and "will cooperate with the government on its investigation."

University Financial Services issued a statement that said, in its entirety: "University Financial Services embraces a high level of ethics in our marketing of student loan consolidation. The relationships between our company and athletic departments of various colleges and universities are part of our generalized marketing efforts, the same as advertising at any sporting event, and do not involve the financial aid departments of the schools involved. UFS is proud of these relationships and believes they were in the best interests of our customers -- recent graduates seeking to refinance existing student loans through consolidation. UFS supports the Student Loan Code of Conduct and plans to fully cooperate with the New York Attorney General’s office. We have no further comment on this matter at this time."

The GAO Report

Education Department officials and Democrats in Congress have argued in recent months over whether the Bush administration has done enough to enforce federal laws and rules governing the sorts of "inducements" that lenders have been shown by the Cuomo and Congressional investigations to sometimes provide to colleges to get them to market their loans.

The report the GAO released Wednesday is free of the harsh rhetoric used by the department's critics, but it does suggest that the department has done too little to preempt problems between lenders and colleges. Not only does the department lack "oversight tools in place designed to proactively detect potential instances" of improper inducements, but it has not issued formal guidance for colleges and lenders since 1989.

The GAO notes that the department has in recent months proposed rules to govern the relationships between lenders and colleges, and that it has begun a series of reviews aimed at ferreting out other potential problems.

In their response to the GAO report, Education Department officials cited several ways in which their authority to identify and punish potential violations is limited by federal laws and rules. But its officials also acknowledged that there was room for improvement in the department's performance, and cited numerous steps the agency was taking to step up its enforcement, including its new proposed regulations and the start of a review, which Under Secretary Sara Martinez Tucker confirmed in an interview with Inside Higher Ed Wednesday, into colleges where the vast majority of student borrowers have federal loans from the same, single lender.

“As highlighted in the department's response letter in the report, we have taken a number of steps to tighten our oversight responsibilities of federal student financial aid programs in these areas under existing regulations and in keeping with GAO'S recommendations," Katherine McLane, press secretary for Education Secretary Margaret Spellings, said in a news release Wednesday.

Still, Congressional critics used the release of the GAO report to bash the department anew. "This report again underscores that the Department of Education completely defaulted on its responsibilities to protect the nation's student loan programs," Rep. George Miller, the chairman of the House Education and Labor Committee, said in a news release Wednesday. "There is simply no excuse for this administration ignoring repeated warnings about potential lender abuses -- both from independent agencies and even from lenders themselves. Earlier this year I called on the secretary to take emergency actions to hold lenders and schools accountable and enforce the law. Today I again urge her to start doing the job she was entrusted with by immediately implementing this report's recommendations."

The Senate's Private Loan Bill

The legislation passed by the Senate banking committee is that relatively rare Washington animal: potentially controversial and divisive legislation that has been crafted in a way that satisfies -- or at least largely gains acceptance from -- very diverse constituents. Student groups, bankers and college officials all generally praised the legislation drafted by Sen. Chris Dodd (D-Conn.), with bipartisan assistance from Sen. Richard C. Shelby (R-Ala.) and other members of the committee.

The legislation is aimed at giving the federal government more tools to oversee the growth and limit the marketing of the fast-growing private student loan market, over which neither the Education Department nor other agencies have typically had much control. The legislation would require lenders to give potential borrowers more information about interest rates, terms and conditions of their products and bar certain kinds of marketing of such loans.

But it stops short of some of the restrictions that some consumer advocates had suggested and many lenders had feared, such as ending the use of so-called "opportunity loans" (pools of loan funds that lenders make available to low-income borrowers) and prohibiting lenders from taking factors other than students' credit scores into account in setting interest rates on private loans.

“This bill will end abusive practices by lenders such as co-branding and kickbacks, and provide borrowers with more clear information about the rates and terms of private loans," said Luke Swarthout, higher education advocate for the U.S. Public Interest Research Group. Providing more clarity about interest rates and potential fees up front to borrowers is critical because a significant number of borrowers turn to private loans before exhausting their capacity to borrower more affordable federal student loans.”