Roundup: Week of June 4 – June 8

At Senate Hearing, Cuomo Criticizes Federal Regulators, Starts Investigation of Student Loan “Redlining”

The U.S. Senate Banking Committee held a hearing on private student loans on Wednesday that focused on what role the federal government can play in overseeing and regulating the private student loan industry. Headlining the hearing, New York Attorney General Andrew Cuomo added criticism of federal regulators at the Federal Trade Commission, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporationspecifically that they arent using the authority they have to enforce laws that protect student borrowers who take out private student loansto his previous harsh remarks about inadequate Education Department oversight. Cuomo also said that he had initiated a new line of inquiry into possible “redlining” practices that lenders may use to discriminate against certain student borrowers. Also testifying at the hearing, several student loan officials argued that stricter regulation of the private loan industry would result in a decrease in the supply of private loans. Meanwhile, student advocates highlighted the harm that rising private loan debt, in conjunction with deceptive marketing practices and unfair personal bankruptcy laws, is having on students.

Education Department Offers its Own Student Loan Regulations

The Department of Education proposed new student loan regulations last Friday that would set stricter standards for lender-university relationships in the Federal Family Education Loan (FFEL) program. The 225-page set of proposed rules clarifies the Higher Education Act’s definition of “prohibited inducement” and would require colleges to include at least three unaffiliated lenders on any preferred lender list. Lenders would be barred from “offering, directly or indirectly, any points, premiums, payments or other benefits” to schools in exchange for student loan volume or preferred status. Colleges would also have to disclose the criteria used to select lenders on preferred lists. However, the regulations do not go as far as those put forth by Congress or the New York Attorney General: for example, colleges could still receive philanthropic gifts from lenders, as long as they arent explicitly tied to loan volume. The new rules would not take effect until next summer, and will likely be preempted by legislation Congress is considering to beef up regulation of the student-loan industry.

Top Executives at Student Loan Xpress “No Longer with the Company”

Three top Student Loan Xpress executives implicated in the recent student loan scandals are “no longer with the company,” the lender’s parent corporation confirmed on Monday. Former President Fabrizio Balestri, Chief Executive Mike Shaut, and Vice Chairman Robert deRose had been placed on leave after Higher Ed Watch revealed that the company had offered stock to an Education Department official who was in charge of monitoring the loan industry and financial aid officials who then recommended the lender to students. In addition, two financial aid directors who had accepted consulting fees from Student Loan Xpress lost their jobs last week. Capella University announced on Wednesday that it had fired its aid director, Tim Lehmann, and Widener University confirmed that its aid director, Walter Cathie, had retired.This follows the dismissal of four other officials who had established questionable relationships with the lender. Last month, Student Loan Xpress settled with New York Attorney General Cuomo for $3 million and agreed to abide by the code of conduct developed by his office.