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U.S. Suspends Lender Access to Borrower Database

April 18, 2007

Education Secretary Margaret Spellings said late Tuesday that 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.

Spellings made the announcement (late in the evening, as has become the department's recent habit when it releases potentially controversial material) in a letter to Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate education committee, who had requested the suspension in a letter to Spellings on Monday.

The secretary said the department would examine the extent of "unauthorized usage" of the database by lenders, acknowledging that it had revoked access for 261 users since 2003, and that 246 of those had belonged to lenders. (News of the concerns was first reported Sunday by The Washington Post.) The student loan database is the central way in which the department, college officials and lenders keep track of student borrowing, and suspending lenders from it is believed to be an unprecedented step. A prolonged shutdown of the database could disrupt the operation of the federal student loan programs, financial aid officials say.

In addition to announcing the suspension, the secretary's letter lays out -- and in general strongly defends -- the steps the department has taken to protect the sanctity of the database and, more broadly, to oversee compliance with federal laws and rules in the federal student loan programs, at a time when allegations of potential improprieties by lenders and some college officials are flying fast and furious.

Kennedy released a statement last night thanking the secretary for acting to limit lender access to the database, but adding that "we must also ensure that students' interests are put first with respect to all aspects of the student loan programs."

Rep. George Miller (D-Calif.), Kennedy's counterpart on the House education committee, had a tougher assessment of the Spellings response. In a statement released Tuesday night, he said he was "pleased that the secretary has belatedly taken some steps to address these fundamental privacy issues. However," he said, "it is long past time for the department to step up to the plate and vigorously investigate both the extent of lenders’ misuse of the student loan database and the exploitation for profit of federal programs that are intended to help students and parents pay for college.”

Miller added: “The plain and simple fact is that the rampant abuses permeating the student loan programs have all happened under the Department of Education’s watch. It is extremely troubling that the secretary is failing to take decisive action to address these egregious conflicts of interest and practices both within her department and the nation’s financial aid system.

Miller announced last week that the House Education and Labor Committee would hold a hearing on the loan programs next week, only the latest sign that Congressional Democrats are ramping up their scrutiny of the department's oversight of the loan programs.

 

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