Notes on a Loan Scandal

Republican senator's bill; Miller review of lender marketing; U.S. reopens database for guarantors, radio roundtable on controversy.

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Sen. Michael B. Enzi (R-Wyo.) introduced legislation Wednesday aimed at restricting the behavior of what he called "bad actors" in the student loan industry. The measure, one of several on the topic that have been introduced by lawmakers in both parties and both chambers of Congress, would go further in some ways than other bills, barring outright colleges' lists of "preferred" lenders, phasing out the ability of colleges to act as lenders to their students in the guaranteed student loan program (commonly known as "school as lender"), and prohibiting lenders and guarantee agencies from sending unsolicited electronic mailings to potential borrowers.
Rep. George Miller (D-Calif.), head of the House Education and Labor Committee, opened what he called a "new line of inquiry" in the expanding and overlapping student loan investigations on Capitol Hill and elsewhere, asking the Federal Trade Commission to investigate how lenders market their products to students. Miller cited examples of what he called "unfair and deceptive" practices that some lenders (in this case, those pushing students to consolidate multiple loans into one) use to get students to use their products and services. In his letter to the trade commission's chairman, Deborah Platt Majoras, he wrote: "To assist in your efforts, I have attached two examples where lenders use what appear to be official government logos and startling language to scare students toward their products." Calls to the offices of the two lenders cited in his letter went unreturned.
The U.S. Education Department sent letters to 35 guarantee agencies Wednesday informing them how they can regain access to the National Student Loan Data System, from which guarantors and other student loan providers were barred last month amid reports that some lenders appear to have inappropriately used information from the database to market their products to students. Department officials said they would conduct a review in which each guarantor must prove that its officials are using the database only for the appropriate purposes.
Haven't had enough of the student loan story? Listen to a discussion about the controversy that unfolded today on National Public Radio's Diane Rehm Show, featuring John Dean of the Consumer Bankers Association, Luke Swarthout of the U.S. Public Interest Research Group's higher education project, and this author. Plus a special call-in by ... yes, Rep. George Miller.