Ed­u­ca­tion sec­re­tary vows crack­down on un­eth­i­cal stu­dent-loan prac­tices

The Washington Times Weekly - - National - By Amy Fa­gan

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.”

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