Interpreting the Sunshine Act

June 18, 2007

As the much-anticipated Student Loan Sunshine Act works its way through Congress this summer, language in the bill has come under close scrutiny.

An alert sent recently by the Association of Governing Boards of Colleges and Universities to its members illustrates the concerns at least one group has about what it deems as overly broad and vague provisions. The letter's title, “Student Loan Reform Bill Would Prohibit Trustees and Presidents from Serving on Bank Boards,” speaks largely for itself.

Still, others who have read the bill (H.R. 890), which has passed the U.S. House of Representatives and is awaiting a Senate companion, say the association is misinterpreting the intentions of the legislation.

The Sunshine Act, first discussed last year but given added momentum by the cascading student loan investigations emerging out of Congress and the New York attorney general's office, would create stricter codes of conduct for university employees and place certain prohibitions on gifts from lenders to student-loan officers -- both aims that the trustees' group's memo praises as preventing further abuses by lenders and employees of institutions.

But the AGB memo says some parts of the bill would be to the detriment of its members, “creating untenable conditions for board members and college presidents as well as confusion on charitable giving by banks to colleges and universities.”

The letter says of specific concern:

  • Trustees would be forced to choose whether to remain a member of the college or university governing board or the board of a financial institution.
  • College and university presidents would be prohibited from serving on the board of a financial institution.
  • Colleges and universities would face confusing and conflicting choices as to whether they could accept philanthropic gifts from such institutions.

A spokesman for AGB said the group had no comment on the internal memo, which says college officials should monitor the bill because it is likely that language in the legislation will be incorporated into pending legislation to renew the Higher Education Act.

Critics of the memo say the association is reading too much into the student loan legislation, and that the prohibitions on serving on bank boards, in particular, would apply only to financial aid officials or those with direct responsibilities with respect to educational loans.

While not directly addressing the the trustees' group's letter, Rachel Racusen, a spokeswoman for Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee who drafted the bill, said in an e-mail that the "intent of the act is clear -- any and all financial arrangements between schools and lenders should be made in the interest of providing students with full and fair information about the types of loans available to them.

"The logic here is quite simple -- any school official involved with administering financial aid should not have outside dealings with lenders that could compromise the financial advice they are giving to students and parents," Racusen added.

Under the bill, colleges could accept philanthropic gifts from financial institutions as long as there is no quid pro quo in exchange for loan volume or placement on a college's preferred lender list, Racusen said. To ensure transparency, colleges would have to report all philanthropic gifts under a new model format that is being developed by the U.S. secretary of education.

James Shekleton, general counsel of the South Dakota Board of Regents, said he thinks the governing board group is giving bad advice to its members. "I'm surprised by the conclusions," he said. "It seemed that the actual text of the legislation didn't go as far as AGB had suggested."

In particular, Shekleton said the group is misreading the provision regarding who should be allowed to serve on bank boards. He points to this clause: an "officer, employee, or agent who is employed in the financial aid office of a covered institution, or who otherwise has responsibilities with respect to educational loans or other financial aid, shall not serve on or otherwise participate with advisory councils or lenders or affiliates of lenders."

The question, then, says Shekleton, is whether trustees are considered to have significant administration of financial aid programs. He says that's a stretch, and that board members have a general policy making and oversight role, which would exclude them from the prohibitions.

"Had the House intended to establish a blanket prohibition on the service by institutional officers on lender governing boards, the English language, even in its legislative iterations, would accommodate more direct expressions of that intent," he said in an e-mail he is circulating. "Given the painstaking specificity of the enumerated bans, it would be surprising if a much broader unstated ban was equally intended."

Michael B. Goldstein, a higher education lawyer with the firm Dow Lohnes, said that it's conceivable that "one could argue that a president has ultimate responsibility" with regards to lender deals with colleges, but that he can't see the bill applying to trustees.

Goldstein said AGB's concerns about colleges accepting gifts is unfounded, because the bill, as he reads it, refers to gifts to individuals, not institutions.

"Certainly the bill is written with broad language, but [the trustees' group] is spinning it in the worst possible way for them."

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