Ongoing Oversight on Student Loans

On Wednesday, the House overwhelmingly passed the Student Loan Sunshine Act, and we noted how the bill, which would clean up student loan practices, dovetailed with extensive oversight efforts during this Congress on the increasingly scandal-plagued federal student loan program. Yesterday the Committee on Education and Labor held yet another hearing on that matter, as well as apparent corruption in the Reading First program, with Education Secretary Margaret Spelling testifying.

Education Secretary Defends Loans Record

Amit R. Paley, Washington Post - May 11, 2007

Education Secretary Margaret Spellings, facing aggressive questions about her department's oversight of the $85 billion-a-year student loan industry, offered a vigorous defense of her actions yesterday and called for a multi-agency effort to prevent corruption in the loan system.

"Federal student aid is crying out for reform," Spellings told the House education committee. "The system is redundant, it's byzantine and it's broken. In fact, it's often more difficult for students to get aid than it is for bad actors to game the system."

In a sometimes-tense hearing, Democratic lawmakers accused the Bush administration of failing to clamp down on conflicts of interest and various industry practices that have drawn criticism from Congress and attorneys general across the nation. The House voted this week to increase federal regulation of the loan business.

"The Education Department's oversight failures have been monumental," said Rep. George Miller (D-Calif.), chairman of the committee. "Was this simply laziness? Was it incompetence? Was it a deliberate decision to look the other way while these things happened? Or was it a failing more sinister than that?"

Miller disclosed at the hearing that the Justice Department is examining a controversial accounting loophole used by Nelnet, a Nebraska-based lending company, in an attempt to collect more than $1 billion in government subsidies. Spellings decided this year to halt the payments but allowed Nelnet to keep $278 million it had collected.

Rep. Tierney: "I'm entirely uncomfortable with this. With the whole scenario of how it occurred, the Friday afternoon release, the large amount of money that's forgiven here, the total disagreement with the Inspector General on this, I think it's very weak, the presentation that you make on that. And I think we should all be troubled, and Mr. Chairman, I hope that we do some more oversight on that issue alone and how many people were allowed to just take the money and run as a result of that decision."

Chairman Miller: "You know, when these other people were caught at it, the cruises, and it was brought to light, they paid back the money, they repaid the money to students, they swore they would never do it again. So none of that was about proving it in a court of law. People were caught and the officials showed up at their front door and said 'this practice is unethical and illegal.' They didn't say well take me to the Supreme Court, they were caught. But nobody from the Department of Education showed up at the front door, that's what I don't understand."