Roundup: Week of August 6 - August 10

Colleges and Lenders Should Adopt Regulations Now, Spellings Says in Letter

Though new Education Department regulations on federal student loans do not go into effect until next July, colleges, lenders, and guarantee agencies should begin following them now, wrote Secretary of Education Margaret Spellings in a letter sent out Thursday. The letter urges colleges that participate in the Federal Family Education Loan Program (FFEL) to provide multiple lender options to borrowers and to not accept any gifts from loan providers. It also asks lenders to not offer gifts to financial aid officers or to falsely identify themselves as members of a school. "Above all, we must work together to maintain a student loan system that best serves the needs of students and parents and enables new generations to reap the numerous benefits afforded by higher education," Spellings wrote. The letter comes eight days after a government report found that the Department of Education has been lax in its oversight of the FFEL program and a few weeks after Spellings office sent letters to 921 colleges warning them to provide more lender options for their students. In a conference call with reporters, Spellings mentioned that the Department is "sending teams" to some of those 921 colleges at which one lender held at least 80 percent of total loan volume, but she declined to give details on the investigation.

Administration Reiterates Veto Threat of Student Loan Legislation

Unless certain changes are made, President Bush will likely veto budget reconciliation legislation pending in Congress that would slash government subsidies to student-loan providers, according to a letter Education Secretary Margaret Spellings sent to Congress last Friday. Spellings was especially critical of a provision in the House bill that would cut in half the interest rate on federally subsidized student loans. She said that savings from the subsidy cuts should be entirely devoted to raising the maximum Pell Grant, rather than to help make loans less costly for college graduates. She also raised objections to proposals in both the House and Senate versions of the bill that would create pilot programs for setting student loan subsidies through an auction process. "While the Administration supports taking advantage of market mechanisms, I strongly believe that we must proceed with great caution in entering the student loan auction arena," Spellings said. She particularly objected to the Senate proposal --which would institute a competitive loan auction pilot for the right to make federal PLUS loans -- saying that it was "highly prescriptive."

Enormous Payouts for Sallie Mae Directors if Buyout Goes Through

While the planned $25 billion buyout of Sallie Mae will enrich many shareholders, the corporations directors will reap huge rewards if the deal goes through. As reported in Inside Higher Ed on Monday, a proxy statement that Sallie Mae has sent to the Securities and Exchange Commission reveals that the company's leaders will earn an estimated $370 million from the sale. The biggest winner from the buyout would be Al Lord, Sallie Maes current chairman and former CEO. Lord, who was accused of using inside information to dump company stock in February, would receive a payday of almost $225 million. By comparison, current CEO C.E. Andrews would receive $16 million. There was some speculation that the buyout would fail following the passage of Congressional legislation that would cut lender subsidies. In its filing, however, the company said the proposed bills did not represent a "material adverse effect" that could lead to a termination of the deal. Sallie Mae shareholders are set to vote on the buyout next Wednesday.

Two Plans for Free Community College

A Democratic presidential hopeful and newly elected governor both unveiled ambitious plans to make community college free this week. Sen. Chris Dodd (D-CT), a presidential hopeful, released a plan Wednesday in which the government would cover 50 percent of the tuition at any community college as long as the state provides the other half. The proposal is expected to cost $54 billion over eight years. "The Dodd plan will guarantee that no American is ever denied a college education because of cost," according to the candidates Web site. Earlier in the week Massachusetts Governor Deval Patrick, also a Democrat, unveiled an even more ambitious plan that calls for free education from the age of three through community college. Patricks plan is still in its beginning stages he tasked an 18-member committee with creating a proposal that could take effect by 2010.