Roundup: Week of May 14 – May 18

Shaw Received $250,000 in Government Bonuses

Theresa Shaw, the chief operating officer of the Department of Educations Office of Federal Student Aid who announced her resignation last week, took home more than $250,000 in performance bonuses over the last four years. Recent revelations of inadequate oversight of the student loan industry during Shaws tenure have drawn into question Shaws management. The bonuses were distributed in accordance with Al Gores “reinventing government” initiative in 1998, under which Congress selected the student aid office as the first government “performance-based organization.” While Shaw headed the office, the government distributed improper 9.5 subsidy payments to numerous student loan companies, including $278 million to Nelnet.

Democratic Presidential Candidates Back 100% Direct Lending

Two Democratic Presidential hopefuls unveiled student loan reform plans this week that would end student loan bank subsidies and transition all student loans to the Direct Loan program. Former Senator John Edwards and Senator Barack Obama (D-IL) both emphasized how much money would be saved through student loan reform that could then be used to help financially needy students attend college. Obama would direct the savings towards larger Pell Grants, while Edwards proposed a “College for Everyone” plan, which would allow all students to attend college for one year tuition-free if they work part-time and take a college-prep curriculum in high school. Edwards plan would also encourage states to keep college tuition low, and would funnel money to low-income high schools to hire college counselors.

Schwarzenegger Proposes Sale of Non-Profit State Loan Guarantor

California Governor Arnold Schwarzenegger proposed on Monday to sell the state student loan guaranty agency EdFund on the private market. Schwarzenegger is hoping to get around $1 billion for the agency, money which he would use to help close the states budget deficit. Consumer groups in California are warning that privatizing the agency would reduce oversight of EdFunds management and of its $27 billion loan portfolio, which has received criticism in recent years. EdFund normally brings in around $20 million a year for Californias budget, and the state is estimating that as many as 10 banks and loan guarantors may place bids. Two years ago, Nelnet offered to buy EdFund for $3.4 billion over 10 years.

New Reports Place Responsibility for Student Loan Scandals on Sallie Mae

Two think tanks, one right-leaning, the other left-leaning, have released reports blaming Sallie Mae for perpetrating corruption in the student loan industry. A report by Tom Stanton of the American Enterprise Institute, “The Privatization of Sallie Mae and its Consequences,” focuses on how Sallie Maes privatization in 1996 allowed it to dominate and distort the student loan market A report by Erin Dillon of Education Sector, “Leading Lady: Sallie Mae and the Origins of Today’s Student Loan Controversy,” also places responsibility for the recent loan scandals on Sallie Maes aggressive expansion into all areas of the industry, which empowered the company to take unfair advantage of “an outmatched and often unmotivated federal regulatory bureaucracy.”