Lobbying Imperils Overhaul of Student Loans

This from the New York Times:

Four months ago, it appeared all but certain that the White House and Democrats in Congress would succeed in overhauling the student loan business and ending government subsidies to private lenders.

President Obama called the idea a “no-brainer” last fall, predicting it would take billions of dollars from the profits of private lenders and give it directly to students, and many colleges were already moving to get loans directly from the federal government in anticipation of the next move by Congress.

But an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.

House and Senate aides say that the administration’s plan faces a far tougher fight than it did last fall, when the House passed its version. The fierce attacks from the lending industry, the Massachusetts election that cost the Democrats their filibuster-proof majority in the Senate and the fight over a health care bill have all damaged the chances for the student loan measure, said the aides, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly.

But they said the administration had recognized the threat and was beginning to push back in an effort to get the plan approved...

KSN&C backstory.

U of L reviewing loan agreement after subpoena

ALBANY, N.Y. --The University of Louisville is reviewing its agreement with a student-loan company after being subpoenaed in a probe into whether college athletic departments steered athletes and and other students to education lenders in exchange for kickbacks.

Spokesman John Drees said the university is reviewing its agreement with United Financial Services and Nelligan Sports Marketing, which manages the rights to the Cardinals' marketing. United Financial is at the center of the inquiry launched by New York Attorney General Andrew Cuomo.

Cuomo issued subpoenas to 39 universities for documents about deals with Student Financial Services Incorporated, which operates as University Financial Services. He's looking into team names, mascots and colors being used to suggest the company is a preferred lender.

This from the Herald-Leader.

Education Dept. Criticized as Lax in Policing Loans

The federal Department of Education, after months of criticism for lax oversight of the student loan program, still has no system to detect and uncover misconduct by lenders and protect student borrowers, a new government report said yesterday.

The report, by the Government Accountability Office and released by Congressional Democrats, found that the department had “no oversight tools” to see whether lenders were giving improper incentives to colleges to steer student borrowers their way, and, that since 1989, the department had offered lenders no “comprehensive guidance” on what incentives might be forbidden. In 20 years, the report found, the department has tried to punish only two lenders for violating government rules.

The department does not have a way to find out whether universities are improperly limiting students’ choice of lenders, according to the G.A.O., the government’s main research arm.

The report, the agency’s first since revelations of potential misconduct in student lending this year, said the department’s lack of oversight of federal student loans “may have resulted in some students taking loans with higher interest rates or fewer borrower benefits.” Over all, the report portrays an agency that may at times react to outside complaints, but does not “proactively detect” problems...

This from the New York Times.

Some Lenders Are Setting Rates College by College

Andrew M. Cuomo, attorney general of New York, said recently in a letter to Congress that his investigation of the student loan business had found “a significant number of lenders” that determine eligibility for private loans and set interest rates based in large part on the colleges the students attend rather than the borrowers’ credit-worthiness.

“Just as lenders in the mortgage industry once made judgments about credit lending in entire neighborhoods as a whole,” Mr. Cuomo wrote, referring to a practice known as redlining, “so too are lenders making generalized judgments about student and parent risk based on a student’s school neighborhood.” He did not name any lenders that engaged in these practices.

This from the New York Times.

Student Loan Overhaul Advances: Votes Expected By House, Senate

Democrats in Congress are pushing to overhaul the nation's student loan system with legislation that would cut federal subsidies to lending companies by as much as $19 billion, channel most of those savings to student aid and ease repayment rules for borrowers.

The Senate education committee overwhelmingly approved its version of the legislation yesterday, one week after the House education panel took similar action. Senior Democrats predicted that the bills would come to a vote by the end of next month and would be reconciled without significant difficulty.

Momentum for the legislation has grown this year as the $85 billion-a-year industry has come under intense scrutiny. Federal and state investigations have found conflicts of interest among lenders, universities and government regulators. In addition, the Democratic takeover of Congress this year has allowed the party to drive its agenda on student loans for the first time in more than a decade.

This from the Washington Post.

House Panel Passes Bill to Cut Subsidies to Student Lenders

WASHINGTON, June 13 — The House education committee voted Wednesday to cut subsidies to student lenders and to halve the interest rates on a key student loan program over the next five years.

The bill, approved in a 30-to-16 vote that included many Republicans on the yes side, underscored the vastly changed landscape facing the student loan industry, which is facing major challenges this year, including investigations of its marketing and underwriting practices. The Senate education committee is taking up its own bill next week, expected to include even deeper cuts in subsidies to lenders than the $19 billion in the House bill, and President Bush also proposed cuts in payments to lenders.

This from the New York Times.

U.S. House education chair wants college lender cuts

WASHINGTON (Reuters) -- The Democratic chairman of the House Education Committee Tuesday introduced a bill to slash subsidies to student loan firms such as Sallie Mae and boost student grants.

The proposals come as Congress is considering numerous reforms to college student financial aid, and as federal and state investigators probe kickback schemes and conflicts of interest across the $85 billion student loan business.

California Rep. George Miller's bill represents a measured step toward compromise with Republicans over an issue that Democratic leaders want to wrap up soon, said Jaret Seiberg, a student loan industry analyst at Stanford Group Company.

"There has been a lot of pressure to get student loan reform done," Seiberg said, adding that if Miller gets his bill through committee, the outcome will be decided in the Senate.

Miller calls for a cut in a lender subsidy, known as the special allowance payment, of 0.55 percentage point. President Bush has proposed a cut of 0.50 percentage point.

This from CNN.

Cuomo Broadens Student Loan Inquiry

Attorney General Andrew M. Cuomo of New York, whose scrutiny of student loans exposed secret ties between universities and lenders, said that he was broadening his investigation to examine the criteria lenders use when making loans and whether they violated civil rights statutes.

Testifying last week at a Senate Banking Committee hearing on private student loans, which do not carry federal guarantees, Mr. Cuomo said he would examine whether lenders were discriminating against students based on the institutions they are attending or other factors not directly related to their credit history.

What criteria are they using in the underwriting of these loans? Mr. Cuomo asked. Parental income? Student income? Student credit worthiness? How about the school you attend? How is that weighted?

While lenders have the right to consider a borrower's credit record in extending a loan, he said, "there are also civil rights and legal ramifications to what criteria they use, and that's what we're looking at."

He suggested that students at historically black colleges and universities were sometimes hit with more onerous interest rates and fees than other students.

This from the New York Times.

White House offers rules to curb abuse in student loan industry

WASHINGTON (AP) -- The Bush administration has proposed new rules aimed at clamping down on conflicts of interest in the student loan industry.

Education Secretary Margaret Spellings had previously said she would issue the rules about this time and the department publicized the proposed rules Friday.

The action comes amid high-profile investigations into the student loan industry by New York Attorney General Andrew Cuomo and lawmakers in Congress. They have accused the Education Department of failing to police improper relationships between student lenders and colleges or their employees.

Cuomo's investigation unveiled arrangements between universities and lenders in which schools received some of the money lenders made from loans at those schools. And in some cases, the investigators found schools or loan officials were given incentives to place loan companies on a school's preferred-lender list.

This from CNN.

U. of Texas Fires Officer Over Tie to Loan Company

The University of Texas fired the director of financial aid at its Austin campus for improper conduct last week, reporting that he had more ties to a student loan company than had been known and had begun recommending the lender to students a few months after he bought stock in its parent company.

The university announced the dismissal of the director, Lawrence W. Burt, who had been on paid leave since last month, as it released a 33-page report — with an additional 100 pages of internal e-mail messages, letters and analyses from the Austin financial aid office — that provided the most detailed public documentation yet of how lenders sought favor inside a university.

The report described a university financial aid office that was oblivious to conflicts of interest and kept meticulous track of “lender treats” like ice cream, happy hours and birthday cakes that apparently were considered in deciding whether to put loan companies on lists of lenders recommended to students. The report called the compilation of such lists “flawed” and done at the sole discretion of Dr. Burt, who was placed on leave after it was disclosed he held stock in Education Lending Group while making decisions about Student Loan Xpress, one of its affiliates.

“It is not at all clear that the factors considered by Dr. Burt” in putting together lender lists “served the students’ best interests or, even if they did, it is not clear how these factors were weighed in making the final decision,” the report said. It said Student Loan Xpress was one of the most frequent givers of “treats.”

This from the New York Times.

U. of Texas Fires Officer Over Tie to Loan Company

The New York Times reports:

The University of Texas fired the director of financial aid at its Austin campus for improper conduct yesterday, reporting that he had more ties to a student loan company than had been known and had begun recommending the lender to students a few months after he bought stock in its parent company.

The university announced the dismissal of the director, Lawrence W. Burt, who had been on paid leave since last month, as it released a 33-page report — with an additional 100 pages of internal e-mail messages, letters and analyses from the Austin financial aid office — that provided the most detailed public documentation yet of how lenders sought favor inside a university.

The report described a university financial aid office that was oblivious to conflicts of interest and kept meticulous track of “lender treats” like ice cream, happy hours and birthday cakes that apparently were considered in deciding whether to put loan companies on lists of lenders recommended to students. The report called the compilation of such lists “flawed” and done at the sole discretion of Dr. Burt, who was placed on leave after it was disclosed he held stock in Education Lending Group while making decisions about Student Loan Xpress, one of its affiliates.

Spellings Pulls A Gonzales

Alexander Russo's blog commentary from This Week in Education was recently picked up by the Huffington Post. Here's his take on Spelling's Capitol Hill performance last week.

The only thing saving Education Secretary Margaret Spellings

from drifting into Alberto Gonzales territory

right now is, well, Alberto Gonzales.

If it weren't for the fact that everyone's attention is focused on him, more folks would notice that Spellings has been up to some very Gonzales-like things over at the Department of Education. (You can watch a video of the testimony here.)

In response to the growing litany of reports and investigations surrounding misdeeds in the multi-billion-dollar student lending industry, Spellings has, somewhat unbelievably, claimed that she lacked the authority to take on the lenders and universities who were manipulating the system for financial gain.

In response to the scandal surrounding an early literacy program called Reading First, which independent reports have found full of conflicts of interest and unwise if not illegal implementation, Spellings argues that she wasn't Secretary then and that everyone involved - former Secretary Rod Paige, former Assistant Secretary Gene Hickock, and others - has left.

True, Spellings wasn't Secretary back then when Reading First was headed off the rails. But it's not like she wasn't there. Before becoming the EdSec, Spellings was head of the Domestic Policy Council, which oversees education from the White House.

And yet, Spellings claims clean hands.

"It would have been impossible for me to have been intimately involved with oversight of all those programs," she said last week in Los Angeles about her responsibilities at the DPC. It's a response that comes awfully close to Gonzales infuriating claims to have not been involved in the Attorney General firings, and to not remember key events.

The Gonzales-Spellings similarities don't end there.

Like Gonzales, Spellings is continually vexed by a former employee who contradicts her account of events. For Gonzales, it's Kyle Sampson. For Spellings, it's Chris Doherty, the former head of the Reading First program, who was summarily dismissed when things started to heat up.

Doherty claims that the White House was intimately involved in every step of the implementation of the program, which allegedly violated federal statutes by excluding certain reading programs from being used. ("Four Officials Profited From Publishers, Report Finds," The Washington Post)

But none of this has led to the type of bipartisan piling-on that Gonzales has endured, nor the calls for her resignation...

For her part, Spellings has done her best to address the allegations against her management of these programs, and to divert attention when she can't. She announced the departure of one top student lending official on Tuesday, just before she was scheduled to testify. ("Federal Student Loan Official Is Resigning", The New York Times) She encouraged the House passage of a student lending "sunshine" law the day before she was to appear, which took much of the steam out of the Thursday proceedings. ("House Passes Ban on Gifts From Student Lenders", The New York Times)

This editorial from the New York Times underscores the point:

“It’s not our fault.” That’s what Education Secretary Margaret Spellings seemed to say while testifying before Congress last week about her department’s failure to halt the payoffs, kickbacks and general looting of the public treasury by a lending company that collected nearly $300 million in undeserved subsidies. But that doesn’t track with the federal Higher Education Act, which clearly authorizes the secretary to disqualify from federal programs lenders who employ payoffs, kickbacks and unethical practices like those that have been found to be commonplace in the college lending business.

Federal Student Loan Official Is Resigning

Under criticism that it has been lax in policing the $85 billion student loan industry, the Education Department announced yesterday that the chief official responsible for overseeing the loan program, Theresa S. Shaw, was stepping down.

This from the New York Times.

"As head of Federal Student Aid, Terri has been a tireless advocate for students and families," said Secretary Spellings. "Her leadership and depth of experience will be sorely missed. She made performance and results a top priority, establishing performance standards, metrics and reporting at every level. FSA now delivers more aid to more students at a lower operating cost with greater accuracy than at any point in its history."

Froim Spelling's press release.

Spellings Rejects Criticism on Student Loan Scandal

With scandal rattling the $85 billion student loan industry, Education Secretary Margaret Spellings argued at a House hearing on Thursday that she lacked legal authority to clamp down on many abuses.

Ms. Spellings faced pointed questioning at the hearing from Congressional Democrats, who accused her department of mismanagement and complacency.

In about three hours of testimony before the House education committee, Ms. Spellings portrayed her department’s oversight of federal lending programs as vigorous, but said that the world of private lending, which has become increasingly important as college costs have outstripped federal loan programs, was mostly beyond her regulatory authority.

She told the panel that the entire student loan system needed overhaul, saying, “The system is redundant, it’s byzantine and it’s broken.”

Several Democrats, led by Representative George Miller, questioned her aggressively, asserting that she had regulatory power and moral influence that she had neglected to wield to stop loan companies from paying universities or giving gifts, trips, stock and consulting payments to the university financial aid officers who guide students toward loans.

This from the New York Times.

Whistle-Blower on Student Aid Is Vindicated

Jon Oberg, a former Department of Education researcher, warned that

student loan companies were abusing a subsidy program

and collecting millions in federal payments to which they were not entitled.

Photo by Michael Temchine for The New York Times.

When Jon Oberg, a Department of Education researcher, warned in 2003 that student lending companies were improperly collecting hundreds of millions in federal subsidies and suggested how to correct the problem, his supervisor told him to work on something else.

For three more years, the vast overpayments continued. Education Secretary Rod Paige and his successor, Margaret Spellings, argued repeatedly that under existing law they were powerless to stop the payments and that it was Congress that needed to act. Then this past January, the department largely shut off the subsidies by sending a simple letter to lenders — the very measure Mr. Oberg had urged in 2003.

The story of Mr. Oberg’s effort to stop this hemorrhage of taxpayers’ money opens a window, lawmakers say, onto how the Bush administration repeatedly resisted calls to improve oversight of the $85 billion student loan industry. The department failed to halt the payments to lenders who had exploited loopholes to inflate their eligibility for subsidies on the student loans they issued.

Recent investigations by state attorneys general and Congress have highlighted how the department failed to clamp down on gifts and incentives that lenders offered to universities and their financial aid officers to get more student loans.

This from the New York Times.

Listen in: NPR has several programs following the student loan scandal.