If lenders and college officials weary of the months-long student loan scandal hoped that the August recess might dampen Congress's ardor to turn over rocks, their hopes were dashed -- and on lawmakers' first day back in Washington, to boot.
The office of Sen. Edward M. Kennedy (D-Mass.) released a report Tuesday that scrutinizes a batch of practices and policies that in many cases, the senator alleges, violate federal laws and regulations governing dealings between colleges and lenders. Many of the findings build on accusations and revelations that have emerged in previous months: Kennedy's Republican counterpart on the Senate education committee, Wyoming's Michael B. Enzi, said the report "simply plows the same old ground," and several targets of the report derided it as old news, since many of the lenders have now forsworn such practices in adopting the Code of Conduct that New York Attorney General Andrew M. Cuomo has promulgated.
But the Kennedy study does provide, through hundreds of pages of documents collected as part of the senator's investigation, a glimpse at the two-way relationship in which lenders have sometimes used questionable practices to gain a share of institutions' loan volume -- and colleges have sometimes openly sought such benefits, known in federal student aid law as "inducements."
"As this evidence makes clear, many FFEL lenders engage in marketing practices that violate both the spirit and the letter of the inducement prohibition of the Higher Education Act," the report asserts. "Vigorous enforcement of existing law is needed to end these flagrant abuses and protect the interest of millions of parents and students struggling to afford a college education."
(In another development as the student loan inquiry quickly ramped back up into gear, New Jersey's attorney general, Anne Milgrim, issued a code of conduct of her own on Tuesday. The code, which prohibits financial relationships of virtually all types between colleges and lenders, adds to an increasingly complicated mix of federal and state student loan laws and rules that colleges will have to abide by going forward.)
The Kennedy report identifies multiple instances in which lenders offered -- or colleges demanded -- corporate contributions in exchange to win or keep a share of the institutions' loan portfolio. In several cases, e-mails from student loan company officials discuss the need to donate funds to college functions or campaigns to build or sustain their share of the colleges' federal student loan volume.
An official from SunTrust bank acknowledged to Kennedy's staff that the company has "from time to time, offered, donated or paid funds to an institution of higher education in exchange for an agreement that the institution of higher education exert efforts to increase [Family Federal Education Loan Program] volume with SunTrust." The Kennedy report reveals numerous instances in which college officials appeared to ask lenders directly for such contributions, to sponsor sporting events or provide materials.
And in one case, after the National Education Loan Network paid $50,000 to help pay for the University of Maryland's "Maryland Day" event last year, a Nelnet official told a university administrator that the sponsorship should earn the company a place on Maryland's list of preferred lenders. Maryland balked at the suggestion, and the loan official was rebuked (but not fired, the Kennedy report said).
Kennedy's report also documents the extent to which lenders offered "opportunity loans" -- pools of private loan funds for students who would otherwise probably not qualify for traditional student loans -- as a way to ingratiate themselves with colleges and earn a cut or a bigger share of their federal loan volume. The report deems Sallie Mae to be the king of this practice, showing instances, for example, in which the company offered Nova Southeastern University an opportunity loan pool with the hope and expectation that it would give Sallie Mae "potential leverage" in a 2005 competition for the university's graduate student loan business. (Sallie Mae did eventually win that business.)
But the documents collected by Kennedy also reveal a situation in which officials at Case Western Reserve University "required Opportunity Loan funding in order for Sallie Mae to maintain its status as an FFEL preferred lender," the report says.
That theme -- that college officials were frequently complicit in some of the practices for which lenders have been most heavily criticized -- emerged in other sections of the report, too. In a portion of the report on the role that college officials play in "steering" their students to lenders that might not offer borrowers the best deal, one document suggests that the University of Oklahoma "limits [its students'] exposure" to lenders who eliminate the upfront origination fee for borrowers "because they do not want to deter students from selecting" lenders that rewarded the university financially for using them. "It appears that the university's appetite for revenue outweighed its concern for its students' financial best interests," the Kennedy report said. Officials at Oklahoma did not respond to a request for a response.
Another section of the report examines the now-ended practices in which guarantee agencies like the New Jersey Higher Education Student Assistance Authority engaged to market loans to colleges in their states. The fact that the report notes that the New Jersey agency has "totally abandoned all the questioned practices," said Sheldon E. Steinbach, a Washington lawyer who represents the New Jersey entity, renders the Kennedy report a "very well written, not totally accurate, historical analysis of what went on. "We're arguing about history, and most of it is now off the table," Steinbach said.
That theme was commonly heard from lenders responding to the Kennedy report. "Over the past several months, Nelnet has helped lead the student loan industry to increase transparency in our relationships with colleges and universities," Ben Kiser, a Nelnet spokesman, said in a prepared statement. "We publicly released a review of our own business practices on our Web site, which included references to virtually all of the matters in the Report, and have adopted a Student Loan Code of Conduct through a voluntary agreement with the Nebraska Attorney General and an agreement with the New York Attorney General. These are new rules for the industry and Nelnet is compliant with them."
Other lenders noted that many of the criticized practices had been deemed legal at the time by the U.S. Education Department, either in advice they had received directly from department officials or in the federal government's prevailing regulatory guidance at the time.
"We followed the rules in place at the time, and we did so in a way that benefited students," Martha Holler, a Sallie Mae spokeswoman, said in response to the charges leveled against the lender in Kennedy's report.
Some lenders argued that the fact that Congress and the Education Department are now poised to change those rules and laws, in new regulatory guidance and pending amendments to the Higher Education, renders the Kennedy report unimportant. But others said the senator's report should provide an impetus to officials at the Education Department, who have asserted on multiple occasions that they have been unable to uncover or prosecute much in the way of meaningful inducements in the federal student loan programs.
"I don't think there are any excuses left for the department to not look into this," said Stephen Burd, a senior research fellow at the New America Foundation, which itself has investigated wrongdoing in the loan programs. "This report seems to lay out the case and provide really strong evidence that there were quid pro quo arrangements and that laws were violated. It should provide the department with what it has needed to prove that laws were violated."
Read more by
Today’s News from Inside Higher Ed
What Others Are Reading