Student-Loan Controversy Is Drawing Wide Concern

Lawmakers, counselors weigh results of probes.

Washington

New York state Attorney General Andrew M. Cuomo charged last week that the U.S. Department of Education has been “asleep at the switch” in monitoring what he sees as the often-cozy relationships between college financial-aid offices and student lenders.

Since taking office in January, Mr. Cuomo has been cracking down on what he deems “predatory lending practices” resulting from interactions between colleges and student lenders. For instance, some colleges have entered into revenue-sharing arrangements with lenders, he said. Schools receive a cut of each transaction, in exchange for recommending the lender to students, typically on a list of preferred lenders presented to borrowers.

“It’s especially offensive because schools are in a relationship of trust. This is not a normal marketplace relationship,” Mr. Cuomo told the House Education and Labor Committee at a hearing April 25. “The school says, ‘Go to this lender,’ they go to that lender. … It’s illegal, it’s wrong, it’s offensive, it’s unethical, it’s unproper, and we’re going...