Preemptive Strike on Student Loans

On eve of House hearing, Education Department creates a special panel; financial aid group considers changes.
April 25, 2007

When a House of Representatives panel holds its much-awaited hearing today on the ever-expanding student loan investigation, the spotlight will be on the sole witness, New York Attorney General Andrew M. Cuomo, whose inquiry into the relationships between colleges and lenders has propelled the issue onto the front pages of newspapers and to the forefront of Washington’s higher education policy scene.

But an undercurrent is sure to be the charge, given voice increasingly by leaders in the Democratically controlled Congress, that the Bush administration's lack of oversight of the student loan industry has been at least partially responsible for allowing the current situation to develop.

Tuesday, the U.S. Education Department sought to take the latest in a series of preemptive strikes designed to persuade lawmakers that its officials are dealing with the perceived problems. It didn't really work.

Education Secretary Margaret Spellings announced Tuesday that she had formed a special internal panel to consider possible regulatory and policy changes related to the government’s student loan programs, building on the work of a federal negotiating committee whose months of work ended in deadlock last week.

Spellings said the new panel, which would be made up of officials from across the department, would make recommendations on some of the issues the negotiating panel wrestled with – such as possible restrictions on colleges’ lists of preferred lenders and on the providing of gifts and other possible “inducements” from lenders to college officials -- that have been at the core of the emerging scandal that Cuomo has helped fuel.

The secretary said the panel would also help decide what the department should do with the National Student Loan Data System, to which Spellings temporarily restricted lender access last week amid findings that some lenders had inappropriately mined it for information about student borrowers to help them market their products.

Department officials have been buffeted by accusations not only of individual wrongdoing by a top overseer of the student loan programs but, more generally, charges that the administration has contributed to the emergence of the scandal by engaging in relatively minimal oversight of the loan programs in recent years. Department officials rebuffed Rep. George Miller (D-Calif.) when he made such charges last week, and sought in Tuesday’s announcement about the new task force to reassure lawmakers that the department is on the case. “Secretary Spellings looks forward to continuing to work with Congress to focus efforts not only on regulation and oversight of the financial aid system but to engage in a national effort to reform and restructure the entire system,” the statement said.

But Miller, who heads the committee that will play host to Cuomo today in a hearing entitled “Examining Unethical Practices in the Student Loan Industry," didn’t exactly embrace the department’s announcement or buy its argument.

Noting that Cuomo and other state attorneys general were “taking aggressive action to end the corrupt practices and other abuses that have been undermining the federal college loan programs and harming students, parents, and taxpayers,” Miller said: “We should be grateful to the attorneys general for their efforts, especially because the federal Education Department has been missing in action.”

Miller said he hoped the task force would provide useful information, but said Spellings “must do more than just create this task force.” He urged the secretary to adopt several steps that he called for her to enact last week, adding, “We cannot rely upon state law enforcement officials to keep doing the work of the federal Education Department."

Expect to hear much more of the same at Wednesday’s hearing.

Financial Aid Group Contemplates Changes

Also on Tuesday, officials of the National Association of Student Financial Aid Administrators said that they were contemplating significant changes both in the group’s own policies and in the guidance it gives its members – campus student aid officers – about their dealings with lenders and the loan programs.

The association has come under heavy criticism from critics of the loan industry for having done too little to discourage some of the disputed practices, for its harsh criticism of Cuomo’s efforts, and for the heavy financial support it receives from student loan companies. (Some of the association's members, though, have praised it for defending them against what they see as broad-brush criticism of their profession.)

Officials of the financial aid association circulated a resolution that its board had adopted at a meeting last weekend in which the group said it would develop a code of conduct for financial aid officials and consider whether the association itself should stop accepting sponsorships and contributions from lenders.

The resolution said the association should promptly:

  • Develop and promulgate its own code of conduct that will provide student financial aid administrators and their institutions with explicit guidance in carrying out the expectations of the NASFAA Statement of Ethical Principles.
  • Review the association’s relationships with student loan providers, other entities, and organizations and "take all such measures as may be necessary to modify its policies and practices to ensure that the association itself is in total and complete compliance with its Statement of Ethical Principles so that the association will continue to set the highest standards of ethical behavior and conduct its affairs in a manner that is free of any conflicts of interest or the perception thereof."
  • Establish a mechanism to inform, educate and advise financial aid administrators on complying with the NASFAA Code of Conduct.
  • Call on NASFAA members to undertake a review of his or her current practices and those of his or her institution to ensure that "all financial aid decisions, particularly those involving educational loans, are free of any bias, actual or perceived conflicts of interest, and are based solely on the best interests of students and parents."

NASFAA officials characterized as mistaken news reports that its board had already decided to stop accepting such funds.

Also on Tuesday, Sen. Edward M. Kennedy (D-Mass.), the other major player (with Miller and Cuomo) in what has become the student loan inquiry triad, sent a letter to college presidents in which he urged them to examine the student loan policies on their campuses and avoid the "disturbing practices" that have come to light.


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