Roundup: Week of December 10 – December 14

Boehner Paid $110k in Legal Fees as Part of Insider Trading Investigation

The office of House Minority Leader John Boehner (R-Ohio) appears to be a target in an ongoing investigation by the Securities and Exchange Commission into allegations that Al Lord, the executive chairman of the student-loan giant Sallie Mae, engaged in insider trading when he sold 400,000 shares of his company’s stock in February. According to The Hill, Boehner has spent more than $110,000 from his leadership office account to cover the legal fees of four of his staffers who were questioned by the SEC as part of the investigation. The aides have since been informed that the agency has no plan to take action against them. Boehner himself has not been questioned, but the article in The Hill suggests that the commission is still examining his office’s possible involvement. The SEC investigation stems from Lord’s decision to sell the stock just days before President Bush released his 2008 fiscal year budget request, which proposed slashing lender subsidies to pay for a substantial boost in the maximum Pell Grant. Bush’s budget announcement sent Sallie Mae’s stock into a tail spin. By selling the stock when he did, Lord saved an estimated $1.4 million, according to the Washington Post.

Cuomo Settles with Lender Over Use of School Logos, Mascots

New York Attorney General Andrew Cuomo announced a settlement on Tuesday with a student loan consolidation company that paid off colleges in exchange for using their names, school mascots, and logos in marketing its loans to students. In addition to no longer engaging in these practices, the Florida-based lender, Student Financial Services, agreed to stop offering rewards for students who sign up for loans or commissions for students who recruit their friends. According to the Associated Press, Student Financial Services had deals with 63 colleges or universities, including 57 Division I schools such as Auburn, Florida State, Georgetown, and Kansas. These arrangements between the lenders and the schools, known as co-branding, often included an up-front payment to the school as high as $15,000, followed by additional sums dependent on the number of loans. “Student loan companies incorporate school insignia and colors into advertisements because they know students are more likely to trust a lender if its loan appears to be approved by their college,” Cuomo said in a statement on his Web site. “We cannot allow lenders to exploit this trust with deceptive, co-branded marketing.”

Cuomo also this week announced a new “Code of Conduct” designed to protect students against deceptive practices used by lenders that market federal consolidation loans and private loans directly to students. Among other things, the code would bar lenders from using “false insignia” to make it look like the companies are marketing loans on behalf of the federal government or colleges. The code would also require lenders to submit uniform disclosures to borrowers, with the intent of “enabling students to compare different loan offers based on identical standards.”

Four Colleges Announce Major Changes to Aid Plans

Harvard University stole the spotlight this week with its announcement that it will cap the expected family contribution of students coming from solid middle to upper-middle class households. Under the new plan, families making between $120,000 and $180,000 will contribute no more than 10 percent of their annual income toward the cost of attending the school. This is on top of pre-existing policies making attendance free for students from households making less than $60,000. In addition, Harvard also announced that it was going to eliminate loans from all student aid packages. Harvards move trumped other aid announcements by Duke University, Pomona and Swarthmore Colleges this week. Duke announced it was making attendance free for students from households making less than $40,000 and would require no family contribution from families earning under $60,000 annually. Meanwhile, both Pomona and Swarthmore announced they would be replacing all loans in aid packages with scholarship money.

Financially Distressed Students Need Better Assistance Network, Report Finds

A new report, which was written by Deanne Loonin of the National Consumer Law Center, calls on Congress to create “a new neutral, nonprofit entity” that would help borrowers who are in financial distress and in conflict with their lenders. The report, “Finding a Way Out: Improving the Assistance Network for Financially Distressed Student Loan Borrowers,” demonstrates the myriad ways in which borrowers are ill-informed in their decisions to take out loans and receive little help when they run into trouble repaying their debts. Overall, the report found that more preventative measures need to be taken to educate students both about the true cost of their loans before they take them out, and better targeted exit counseling is needed to help students understand the repayment terms on their loans. In addition, the report found that students need better legal and representative aid when they find themselves at odds with their lenders.

Special Delivery for Maine Newborns

Babies born in Maine will soon receive more than just a blanket and cap. Starting in January 2009, all new parents in the state will receive an application to open a 529 tax-free savings account worth $500 before leaving the hospital. Families that take advantage of the program, which was created and is being financed by the Harold Alfond Foundation, will receive a NextGen account for babies starting at birth. Assuming 8 percent annual interest, the approximate value of the account when the child turns 18 will be $2,000, a number that grows to over $25,000 if parents deposit $50 per month into the account. Withdrawals from the account will be tax-free as long as they are used to pay for college. The foundation will also provide parents with quarterly account statements that include age appropriate advice for preparing their children to pursue a higher education. Harold Alfond, who never attended college, founded Dexter Shoe, Co. and sold it to Berkshire Hathaway for $420 million in 1993. He died last month at the age of 93.