Higher Ed Roundup: Week of March 10 – March 14

Kennedy Offers Amendment to Increase Fed. Loan Limits

Lawsuit Alleges Online University Bilked Billions from Ed Dept.

Two Companies Announce End to Controversial Loan Programs

Kennedy Offers Amendment to Increase Fed. Loan Limits

While the credit crunch continues to have little effect on federal student loans, concerns about private loan availability have prompted preparatory action by Sen. Edward Kennedy (D-MA), Chairman of the Senate Education Committee. On Wednesday, Kennedy put forth a budget resolution proposal that signifies his willingness to raise federal Stafford loan limits at a later date should the private loan market worsen. In his floor speech, Kennedy emphasized that higher Stafford loan limits could benefit the “40 and 60% of students who turn to high-cost private loans” before exhausting federal aid eligibility. Kennedy attributed those figures to the U.S. Department of Education. [Disclosure: the Editor of Higher Ed Watch used to work for Kennedy.]

Lawsuit Alleges Online University Bilked Billions from Ed Dept.

An online university may have defrauded the U.S. Department of Education more than $4 billion, according to a recently unsealed federal lawsuit filed by three ex-employees. The plaintiffs, two department chairmen and a former dean, charge that Kaplan University engaged in questionable enrollment practices to bilk the Education Department out of roughly $500 million a year since 1999. According to the Miami Herald, the suit accuses the Fort Lauderdale, Florida-based online college of “accepting unqualified students and pressuring faculty to grade leniently to keep students enrolled so it could continue receiving hundreds of millions in student financial aid each year.” The claims are similar to ones previously leveled at the University of Phoenix, another large for-profit college offering online education. Kaplan, which is owned by the Washington Post Company and generated $1 billion in revenue last year, denied the allegations, saying the plaintiffs are disgruntled and that one of them may have abused the e-mail system to send threatening messages.

Two Companies Announce End to Controversial Loan Programs

Problems in the credit market continued to affect student lenders this week with the announcement that the Iowa Student Loan Liquidity Corporation will stop offering private loans in April. These are the same loans that the company ran into trouble with last December, when the agency came under fire for allegedly using overly aggressive marketing tactics and its cozy ties with colleges to push Iowa students to take on a disproportionate amount of high-cost private debt. Despite misleading reports such as the one found here, the lender will continue to offer federal loans.

The Iowa agency is not the only company to announce the end of a controversial practice this week – on Tuesday Nelnet revealed that it would stop working with the 20 schools in its school-as-lender program. Operated by about 150 schools nationwide, the program involves colleges originating loans to their students using funds provided by a private lending company. Once the loan is disbursed, however, the school then sells the loan at a premium back to the loan company. The “store front” operation came under fire last March following revelations that Nelnet had forged a questionable partnership with the University of Nebraska involving cash payments and stock transfers.