House Bill, Hearing Turn Up the Heat On Administration Over College Loans

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The House gave overwhelming approval last week to a bill that would set new limits on the relationships between lenders and colleges participating in the federal student-loan program.

Meanwhile, Democratic lawmakers confronted Secretary of Education Margaret Spellings at an occasionally testy May 10 hearing by the House education committee, asking why she hadn’t used her influence to stop lenders from providing perquisites and financial incentives to college officials who steered business toward them. They also asked why the Department of Education hadn’t closed a loophole allowing lenders to overcharge the federal government for loans made in the program.

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“At no time did anybody at the department pick up the phone and say, ‘You’ve got to stop it’?” Rep. George Miller, D-Calif., the chairman of the House Education and Labor Committee, asked Ms. Spellings, referring to lenders’ offering benefits such as cruises for college officials who administer student-loan programs or paying them to serve on advisory committees.

Ms. Spellings responded that the student-aid law establishes “high hurdles” for her to act, essentially requiring her to prove a “quid pro quo” between the gifts given by lenders and actions taken by student-loan officials at colleges.

Republicans on the committee said that the Bush administration had fixed several financial problems in the student-loan program that existed in 2001, when President Bush took office.

In 2003, independent auditors gave the Education Department a clean audit for the first time in six years, and in 2005, the Government Accountability Office, for the first time in 15 years, removed the student-loan program from its list of federal programs that were at high risk for fraudulent activity, Rep. Howard P. “Buck” McKeon of California, the committee’s ranking Republican, said at the hearing.

New York state Attorney General Andrew M. Cuomo has investigated the financial relationships between school officials and lenders, saying that school officials violated the “relationship of trust” between students and school officials. ("Student-Loan Controversy Is Drawing Wide Concern," May 2, 2007.)

Taking Action

Despite the partisanship in evidence at the hearing, the House acted with near unanimity on May 9 in an effort to address the problems recently uncovered in the student-loan program. The vote approving the legislation was 414-3.

Called the Student Loan Sunshine Act, the measure would bar gifts from lenders and would prohibit college officials from receiving compensation for serving on lenders’ advisory committees. It also would require that colleges and universities disclose their relationships with lenders, and that so-called preferred-lender lists be compiled “with the students’ best interest in mind,” according to a summary of the bill.

The Senate is weighing a companion bill.

Earlier last week, Ms. Spellings announced that Terri Shaw, the chief operating officer of the division known as Federal Student Aid, would retire on June 1, the end of her five-year term.

Vol. 26, Issue 37, Page 24

Published in Print: May 16, 2007, as House Bill, Hearing Turn Up the Heat On Administration Over College Loans
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