Education secretary vows crackdown on unethical student-loan practices
Education Secretary Margaret Spellings on May 10 said she’ll propose regulations this month to crack down on the student-loan industry, as she fought lawmakers’ sharp accusations that the department stood by while unethical practices between colleges and lenders continued.
“Who was monitoring? Did they have blinders on?” House Education and Labor Committee Chairman George Miller asked Mrs. Spellings, who testified before the committee.
Mrs. Spellings said she “clearly” was concerned and responded accordingly — starting the reform process last year, fielding recommendations from a task force last week and proposing draft regulations by the month’s end. But she said the entire student-loan system needs to be changed.
“Federal student aid is crying out for reform. The system is redundant, it’s byzantine, and it’s broken,” she said.
An ongoing nationwide investigation by New York Attorney General Andrew Cuomo has uncovered conflicts of interest, revenue-sharing schemes and other deceptive practices between lenders and colleges, prompting federal lawmakers and other state attorneys general to start their own probes.
Mrs. Spellings said most of the grievances involve private lenders, so she’ll convene a meeting with the monitoring agencies, such as the Federal Trade Commission and Securities and Exchange Commission. She also said a very high bar of evidence was needed in order for her department to take action against lenders under their jurisdiction.
But Mr. Miller, California De- mocrat, rejected all of this and said the Education Department knew of deceptive practices in 2001, ignored a 2003 memo from its own inspector general asking for action, and opted instead to “monitor” the situation.
“Nowhere in five years of monitoring [. . .] did anyone make an effort to call a halt to these” practices, he said.
The scandal has rippled far and wide. Mr. Cuomo — who also has criticized the department over this issue — on May 10 reached an agreement with Student Loan Xpress, Inc. and its parent company CIT Group Inc., under which CIT will adopt a new code of conduct and pay $3 million to a national financial aid education fund for stu- dents and parents.
The House on May 9 approved a bipartisan bill that would ban all gifts, participation on advisory boards and revenue-sharing agreements between lenders and schools, and would require the two groups to adopt strict codes of conduct. Schools would have to disclose all relationships with lenders and en- sure that “preferred-lender lists” are used only to promote the students’ best interest.
Mrs. Spellings called the bill “a great step in the right direction.” She said her regulations would be similar, reforming the preferred lender lists and cracking down on inducements.
Republicans were supportive of the reform legislation and forth- coming regulations. They also jumped to Mrs. Spellings’ defense — noting that many of the problems predated her tenure, which began in 2005, and that the Clinton administration left the Education Department with a mess that the Bush administration cleaned up.
Top panel Republican Howard P. “Buck” McKeon, California Re- publican, noted the first clean audit of the Education Department happened in 2003.
“This turnaround didn’t happen by accident, and I am confident the department will continue to be a partner in addressing the challenges before us,” he said.
Mrs. Spellings also fielded questions from lawmakers on the Reading First program, which was found to have management and conflictsof-interest problems of its own, as well as the department’s decision not to recoup $278 million in overpayments to Nelnet, a student-loan company that improperly billed the department.
Mr. Miller said the Justice Department is looking into the Nelnet situation. But Mrs. Spellings defended the decision to stop costly future overpayments by settling with the company.
On the student-loan scandal, conversation got heated when Rep. Ric Keller, Florida Republican, noted that during Mr. Cuomo’s tenure as Housing and Urban Development secretary, HUD was put on notice for waste, fraud and abuse.
“People who live in glass HUD houses probably shouldn’t be throwing stones,” he said.
Mr. Miller called that “outrageous” and angrily responded that “but for the attorney general of New York [. . .] we wouldn’t be here today.”