Spellings vows headway on student loans

10 May 2007 // Education Secretary Margaret Spellings sparred with the chairman of the House education committee Thursday amid allegations that the department's oversight of the student loan industry has been lax.

Rep. George Miller, D-Calif., said in a hearing that the department failed to do its job when it came to uncovering improper relationships between student lenders and colleges or student loan officials at those colleges.

Miller pointed to a 2003 notice from Education Department Inspector General John Higgins' office urging the department to take action to curb gift-giving by lenders to colleges or their staffs.

Miller said the department promised that it would keep an eye on such activities, a response he called inadequate. Spellings countered that the department has done what it could under existing law. "We monitor these programs vigorously," she said.

"Who is monitoring? Do they have blinders on?" Miller asked.

The hearing was focused on recent findings of an investigation by New York Attorney General Andrew Cuomo into the $85 billion-a-year student loan industry. Cuomo has turned up evidence that some colleges received a percentage of loan proceeds from lenders given preferred status by the schools - a practice Cuomo calls "kickbacks."

Cuomo also found that some college loan officers received gifts from lenders to encourage them to steer borrowers their way.

On Wednesday, the House overwhelmingly passed a bipartisan bill that would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies.

Spellings called the vote "an important first step in this process."

But she also noted that she also was taking steps to push through new regulations to protect against conflicts of interest. She said proposed regulations would be completed this month and would include a requirement of at least three lenders on any school's preferred-lender list, together with an explanation of how and why they were chosen. The rules also will spell out what is allowed and what is prohibited with regard to inducements from lenders to schools, Spellings said.

She said the Education Department has oversight only for loans made through the federal student loan programs in which the government guarantees the loans. She said she has no authority over the growing private student loan industry, in which the government doesn't make or guarantee the loans.

Spellings announced at the hearing that she was convening the chairs of other federal agencies that deal with banking and lending issues to help her examine the problems in this sector of the student loan industry.