Student Loan Reform

May 1, 2007

On May 10, U.S. Education Secretary Margaret Spellings will appear before the Committee on Education and Labor to testify about the department's oversight of programs under its control, including the college loan programs and the Reading First program for young children. Another front page Washington Post story explains how the breakdown in student loan practices developed from the beginning of the Bush Administration:

Warnings On Student Lenders Unheeded

Amit R. Paley, Washington Post - May 1, 2007

The Bush administration killed a proposal to clamp down on the student loan industry six years ago following allegations that companies sought to shower universities with financial favors to help generate business, according to documents and interviews with government officials.
The proposed policy, which Education Department officials drafted near the end of the Clinton presidency and circulated at the start of the Bush administration, represented an early, significant but ultimately abortive government response to a problem that this year has grown into a major controversy.
Now, as the $85 billion-a-year student loan industry faces an array of investigations into questionable business practices that some officials believe could have been curtailed by the 2001 proposal, the Education Department has embarked on a new effort to set rules for the industry to prevent conflicts of interest and other abuses. If approved, the rules would be implemented in summer 2008, a few months before Bush leaves the White House.
The abandonment of the 2001 proposal underscores what some consumer advocates and Democratic lawmakers believe is lax federal oversight of the financial aid system by a department they say is too cozy with the industry. More than a dozen senior department officials either previously worked in the student loan business or found high-paying jobs in the sector after they left the agency.
"The Department of Education has been run as a wholly owned subsidiary of the loan industry under this administration," said Barmak Nassirian, a longtime advocate for industry reform at the American Association of Collegiate Registrars and Admissions Officers. "They are running the federal loan program for the profit of their friends and not for the benefit of students and taxpayers."

The Committee has already held one hearing on this matter, where New York Attorney General Andrew M. Cuomo - a leader in the fight to crack down on unethical student lending practices - gave extensive testimony on both the problem and potential solutions. His opening statement as given:

Mr. Cuomo:

"It has recently been reported that the Department of Education rule-making process which was supposed to resolve these issues has broken down. To me, Mr. Chairman, that is like saying the fire truck has stalled on the way to the fire. It is simply unacceptable that the DOE can fail to right these wrongs in the midst of the disturbing revelations, and at a time when students all across the nation are clamoring for guidance and help."

Read more about the Student Loan Sunshine Act, as praised by Mr. Cuomo, and see past coverage from the Gavel of the student loan issue in our education category archive.