Asleep at the Switch
Blog Post
April 24, 2007
The Bush administration officials in charge of the U.S. Education Department have been "asleep at the switch" as widespread abuses have occurred in the federal and private student loan programs that have left hundreds of thousands of students vulnerable to predatory lenders, New York State Attorney General Andrew Cuomo charged on Wednesday.
"The practices we have uncovered were not undiscoverable until now," Mr. Cuomo said at a hearing before the House Committee on Education and Labor. "Rather, the entity charged with maintaining the integrity of the student loan market failed. The failure of the [Education] Department to pass adequate regulations is disappointing and irresponsible."
For the past several months, the New York Attorney General has been leading an investigation into the sweetheart deals that some of the largest student loan providers have struck with colleges and financial aid administrators to win student loan business. So far, Mr. Cuomo has reached settlement agreements with more than a dozen colleges and the four largest lenders in the Federal Family Education Loan (FFEL) program, as well as the private-loan company Education Finance Partners. (At today's hearing, Mr. Cuomo announced that he had reached a settlement with Bank of America and JP Morgan Chase)
Democrats and Republicans alike applauded Mr. Cuomo's efforts but clashed somewhat over the Department's culpability.
"The blame rests not just with the lenders and individuals who have exploited these programs for profit, but also on this Administration," Rep. George Miller (D-CA), Chairman of the House Education Committee, said at the outset of the hearing. "Its failure to conduct proper oversight or hold the industry accountable has harmed student and family borrowers and taxpayers, all of whom ultimately pay the price for these corrupt practices."
But the Committee's Republican leaders argued that most of the bad practices that Mr. Cuomo has identified occurred in the private loan program rather than federal programs, and therefore the Department could do little about them.
"We have no jurisdiction over private lending," Rep. Howard P. (Buck) McKeon (R-CA), the panel's top Republican, said. "And neither does the Department."
Mr. Cuomo, however, adamently disagreed with Mr. McKeon's characterization of his investigation and with the lawmaker's assertion that the Department did not have oversight authority over the private loan program.
He noted that his investigation had uncovered improper conduct in the FFEL program, where Education Department regulations had clearly been "flouted." He offered several examples, including:
- A college in the State University of New York system that allowed students to get loans from only one lender. "That was a clear violation of federal law under which a student is assured a choice of any lender," the Attorney General stated.
- The New York Institute of Technology, which he found, chose its "preferred lenders" by considering how much each loan provider contributed to sponsor the school's programs and events.
- A financial aid director at Columbia University who held stock worth at least $72,000 in Student Loan Xpress, the top student-loan provider on its campus. Higher Ed Watch was the first to report that David Charlow, the university's aid director, held stock in that company.
Mr. Cuomo also argued that the federal government has a responsibiity to safeguard students and their families from "predatory lending practices" in the private student loan market. Private loans are the fastest growing part of the overall student loan market -- accounting now for 20 percent of the all student loan borrowing -- and the area in student lending that is most vulnerable to abuse. "The business is huge," he said. "It should not be ignored."
He also faulted Education Secretary Margaret Spellings for failing to react more quickly to the "disturbing revelations" that have come to light. He said that Ms. Spellings' recent decision to form an internal task force made up of Education Department officials to examine ties between lenders and college financial aid officers was "too little, too late."
"The Department can and should issue regulations immediately, for effect, to reform the industry and protect our students," Mr. Cuomo stated.
Soon after the hearing ended, Ms. Spellings fired back, saying that the Department "takes its role as steward of federal financial aid very seriously."
Speaking of Mr. Cuomo, she said, "I share his concerns on lender practices, but believe his testimony was ill informed on the Department's actions and on federal law." She said that she has asked the internal task force to provide recommendations for new federal regulations on student loans within a month.
Higher Ed Watch is encouraged that the Education Department, Congressional Republicans, and Democrats all acknowledge problems in the Federal Family Education loan program and are recommending changes.
But we would be remiss not to agree with Mr. Cuomo that the Administration has failed to provide adequate oversight of the student loan industry. Department leaders put loan industry officials in charge of monitoring the loan programs, creating a revolving door that has left students and taxpayers vulnerable.
No one in the Department of Education has been held accountable for the present student loan scandal or the more fiscally irresponsible 9.5 percent student loan scandal. Why not? This Administration is supposed to believe in the power of accountability when it comes to education policy. It's time to start practicing it.
Michael Dannenberg contributed to this report.