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Lax Student-Loan Regulation Invites Abuses, Witnesses Tell Senate Panel

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Washington--Regulations and procedures for federal student-loan programs are so loosely written and poorly enforced that they invite abuse by unscrupulous trade-school owners, a variety of witnesses told a Senate subcommittee last week.

Inspector General James B. Thomas of the Education Department and two Senate investigators told the Governmental Affairs Subcommittee on Investigations that regulation of the for-profit trade schools needs to be tightened considerably.

The situation is "like putting the prisoners in charge of running the prison," according to a report prepared by the investigators.

Also testifying was Tommy Wayne Downs, a former trade-school owner who was sentenced to prison for inventing fictitious students and collecting their student-aid checks. The regulations are so porous, Mr. Downs claimed, that he could easily engineer the scheme again once he leaves prison.

The hearing was one in a series of hearings on student-loan abuses, which is to continue later this month.

Trade schools, which generally cater to low-income students who may be unprepared for a two-year or four-year college, have been under particular scrutiny from the panel.

The Senate investigators' report cited numerous failings in all regulatory spheres of the program, including licensing of the largely private trade-schools by state agencies, assessments of educational quality carried out by private accreditors, and the department's selection of accrediting agencies and procedures for certifying schools eligible for student-loan programs.

Moreover, those aspects of regulation are rarely coordinated, the report said, and the licensing and accrediting components are subject to conflicts of interest because of the loan program's reliance on self-regulation.

Secretary of Education Lauro F. Cavazos last week responded to some of the complaints by instructing a federal advisory committee to examine seven agencies that approve many schools with high default rates.

Among the more egregious abuses noted by the report are one school's construction of a makeshift library prior to a site visit by investigators and the routine evasion of oversight by trade-school owners who open branch campuses that are not subject to further scrutiny once the main campus has been accredited.

Mr. Thomas, who said his office has spent a majority of its time in the past few years investigating loan fraud, said that even when major policy problems are identified, department officials are often stymied by program regulations that protect accredited schools.

If further investigations are needed, he said, the department often lacks the resources and staff to follow through.

Mr. Thomas called for regulations that would make it easier for the department to eliminate trade schools from the aid programs.

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