Let's say you're a financial aid director (with his or her trusty lawyer in tow) at a college in New York State, and you're deciding what practices should govern your future dealings with students and loan providers in the highly charged climate in the wake of last spring's student loan scandal. The general principle is obvious -- less interaction, much more disclosure -- but on specifics, questions arise. Do we continue to have a preferred lender list, and if so, how many lenders should be on it? If our guarantee agency provides reimbursement to professional development seminars, do we accept it?
The tricky thing is that the various places to which you might turn for advice on those questions offer conflicting guidance. New York State's Student Lending Accountability, Transparency and Enforcement (SLATE) Act of 2007, which emerged from the investigation begun last winter by Attorney General Andrew M. Cuomo, bars lenders from providing any payments -- including reimbursement for travel expenses to lender-sponsored events -- to college officials. But the U.S. Senate's legislation to renew the Higher Education Act, which contains a version of the Student Loan Sunshine Act that Congressional Democrats have proffered and that the House passed as a freestanding bill last spring, would allow reimbursement for travel.
On the question of preferred lenders, proposed rules promulgated by the U.S. Education Department would require colleges to have at least three lenders on any list of "preferred" providers they share with students; the SLATE law, and Attorney General Cuomo's underlying Code of Conduct, contains no such minimum requirement.
Financial aid and lending officials in New York are far from alone in facing potential uncertainty over which requirements to abide by. More than a dozen state attorneys general have adopted their own codes of conduct, and virtually any student loan provider -- and any college that enrolls students from New York -- is technically covered by the SLATE law.
"If you have 5 or 10 or 15 different standards that institutions are being held to, that enormously complicates their efforts to comply, and results in the possibility of significant confusion," says Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education. "At the end of the day, everybody is further ahead if the standards, rules and procedures are clear and widely understood." (One university's recent stab at comparing the differences among the many proposals out there can be found here.)
It's not at all certain that the clarity Hartle describes will be forthcoming. The Education Department is expected to release by November 1 a final set of regulations that emerged from the negotiated rule making session it held last winter, and those rules would be set to take effect next July. But those regulations would be at least partially outdated if and when Congress finally gets around to passing a final version of Higher Education Act legislation that will presumably contain some version of the Student Loan Sunshine Act; passage of that law, which Congressional leaders continue to insist will happen this year, would require the Education Department to issue a new set of regulations to carry out the changes made by that legislation.
Student loan providers are looking to the Education Department for help. In a letter to Education Secretary Margaret Spellings last month, several groups of bankers asked the department to issue "a clear set of standards" governing the behavior of lenders and college aid officers -- and to specifically "pre-empt" (or essentially invalidate) state laws that conflict with the federal guidelines. "We encourage you to take this action, which we believe is fully consistent with the history of the Family Federal Education Loan Program and an important step in your initiative to protect students and otehr borrowers from potential abuse," the Consumer Bankers Association, American Bankers Association, and Financial Services Roundtable said in their letter.
"If you look at the interested constituencies, I think we could all agree that having a uniform set of rules would be the ideal," said Brian W. Jones, executive vice president and general counsel of College Loan Corp., who was general counsel at the Education Department during President Bush's first term. "The department has already expended the effort of putting together negotiated rule making that allowed all affected constituencies to weigh in on the process, and I don't think there is any reasonable dispute that the secretary has the authority to preempt" state laws and rules.
Jones and other supporters of the idea note that a group of state attorneys general wrote a letter to U.S. Senate leaders in June urging passage of federal legislation to govern lender-college behavior. "We are well aware of the power and responsibility of the federal government to resolve national issues with uniformity and consistency," 32 attorneys general wrote. "This problem cries out for a federal solution that supplements the work of state attorneys general offices across the country."
An Education Department spokeswoman, Samara Yudof, said Tuesday that "[t]he Department has received comments regarding [the possibility of preempting state laws and rules] in response to our proposed regulations and we are weighing them carefully as we finalize our regulations." But many financial aid experts said they considered it unlikely that the department -- even if it did have the legal authority to do so -- would assert federal authority in such a way, given that federal preemption could be seen not only as infringing on the power of state officials (which could anger Cuomo and other attorneys general) but also as a tactic that promotes corporate interests over those of consumers, as groups like the U.S. Public Interest Research Groups characterize it.
Congress, too, may be unlikely to include in its own legislation any language that preempts state laws and rules, some observers predict, especially because there are high-profile areas -- most notably regarding the fast-growing market of private student loans -- in which state laws like New York's SLATE are much more restrictive than any federal laws or rules are likely to be, given the perceived limits on the federal role in regulating such loans.
"The private loan area is one in which the federal legislation is much weaker than the state laws, and that may be one reason why the industry seeks to have a national policy," said Mark Kantrowitz, publisher of Finaid.com. While Kantrowitz acknowledged the differences among the competing federal and state approaches to governing the behavior of lenders and colleges, he is among those who played down the need for dramatic steps to craft a single set of standards.
"There is no one piece of legislation that addresses all the issues, and there's unlikely to be one," he said. "In any situation where there’s conflict like that, the ultimate solution is to abide by the more stringent of the rules. If you do that, you’re safe."
Dallas Martin, president of the National Association of Student Financial Aid Administrators, said that while legislation or regulation that specifically preempted state and local laws might provide the clearest-cut consistency that lenders and college officials are seeking, strongly written, well-conceived legislation passed by Congress and regulations developed by the Education Department could largely accomplish the same ends.
"My guess is that some time here before hopefully too much longer, we're going to get our Higher Education Act finalized, and then regulations are going to be written to implement all that," Martin said. "I think a lot of people feel that as long as that gets out there, whether there's a specific preemption or not, what you're going to have is a set of rules that is applied consistently across the country."
Some key lawmakers appear to be operating under much the same assumption. Sen. Michael B. Enzi (R-Wyo.), the senior Republican on the Senate Health, Education, Labor and Pensions Committee, has been pressuring his colleagues in the House to join the Senate in passing a Higher Education Act bill that will set clear standards for inducements and other lender-college relationships in the student loan programs. The Higher Ed Act been has languished in Congress for nearly four years now, and Enzi and others hope that the need to pass strong, national legislation to govern behavior in the loan programs may finally push the bill over the finish line -- with lawmakers knowing that they could face significant criticism from the public (and from people like New York's Cuomo) if they don't act.
Says Enzi: “Congress must take advantage of the opportunity to enact real reform in the student loan industry by passing comprehensive Higher Education Act reauthorization this fall. The Senate has stepped up to the plate and passed a bipartisan bill that will root out bad actors in student lending and protect student borrowers. It’s time for the House to take action -- our students deserve it.”