Higher Ed Roundup: Week of July 7 – July 11

California Halts State Oversight of For-Profit Colleges

Ties Between Sallie Mae and Guarantee Agency Come Under Renewed Scrutiny

Student Loans Still a Problem, Says Outgoing Ed. Dept. IG

California Halts State Oversight of For-Profit Colleges

State oversight over for-profit trade schools in California came to a grinding halt on July 1, when a temporary law regulating proprietary institutions in the state expired. In a last-minute attempt to thwart the deadline, Democratic legislators tried unsuccessfully to pass an emergency measure creating a new regulatory system for monitoring the schools. Republicans, siding with the for-profit higher education industry, voted against the legislation, arguing that it would impose overly-burdensome requirements on their institutions. Democrats and consumer groups denied that characterization, saying that the measure had been significantly watered down to address the schools’ complaints. As a result of the impasse, the state will have no oversight authority over the sector until at least January, when the legislature is expected to bring the bill up for a vote again. In addition, schools are no longer required to contribute to a state tuition recovery fund that reimburses students who attend schools that unexpectedly shut down, leaving little money for those left in the lurch.

Ties Between Sallie Mae and Guarantee Agency Come Under Renewed Scrutiny

A controversial 2004 decision by the U.S. Department of Education to bless a lucrative arrangement that exists between the student-loan giant Sallie Mae and the USA Funds, the country’s largest guarantee agency, has come under renewed scrutiny after a copy of a contract between the two companies was leaked on the Internet late last month. A former top Department official, who reviewed the contract after it was leaked, said that the arrangement clearly violates the law, which forbids for-profit lenders from owning nonprofit entities such as guarantee agencies. “The contract is saying that USA Funds is the guarantor in name only,” Larry Oxendine, who was the Department’s director of student aid policy and analysis until he retired last summer, told The Chronicle of Higher Education. “Sallie Mae does everything and makes all the decisions on behalf of USA Funds.” Responding to the criticism, Department officials reaffirmed the 2004 ruling — which was made by Matteo Fontana, a former Sallie Mae official who was in charge of overseeing the Federal Family Education Loan (FFEL) program at the time — but said it was interested in learning more about potential conflicts of interest that may exist between guarantors and lenders. In that spirit, the Department sent a letter to the leaders of the 35 guarantee agencies, requesting detailed information about any contractural arrangements they may have with loan providers.

Student Loans Still a Problem, Says Outgoing Ed. Dept. IG

The Federal Family Education Loan (FFEL) program remains extremely vulnerable to waste, fraud, and abuse, says John Higgins Jr., the Department of Education’s outgoing Inspector General. In a recent interview with The Chronicle of Higher Education, Higgins, who is retiring this month after serving in the government for 40 years, said that because the FFEL program is so complex, the Department often turns to people inside the student loan industry to regulate it. Putting lenders in charge of overseeing the loan program almost inevitably leads to potential conflicts of interest, he said. Under Higgins’ watch, the IG’s office has often criticized the Department’s lax oversight over the lenders and guarantee agencies that participate in FFEL. He also found himself at odds with the Department’s political leaders over his recommendations to require lenders to return hundreds of millions of dollars they received in improper 9.5 percent subsidy payments. An investigation his office conducted into the student loan company Nelnet’s efforts to overbill the U.S. Treasury won the Alexander Hamilton Award, a prize the government gives to inspector generals for “outstanding achievements in improving the integrity, efficiency, and effectiveness of Executive Branch agency operations.”