Roundup: Week of May 21 – May 25

The New Sallie Mae Promises Reform

The private equity firm that is leading a takeover of Sallie Mae promised this week to make changes to the company’s practices and personnel that it hopes will help the loan company — in the words of the Washington Post — “improve its tattered image on Capitol Hill.” J.C. Flowers & Company began to make good on those promises Tuesday when it announced that Thomas Fitzpatrick had resigned from his position as the company’s chief executive officer, a position he had held for two years. According to the Post’s account, Flowers and the other investors decided to make the change because they had concluded that key lawmakers viewed Mr. Fitzpatrick as being “arrogant and unwilling to listen.” The equity firm and its partners in the pending sale also announced a series of “initiatives to enhance responsible student lending” that will be implemented after the takeover. Among other things, the purchasers promised that Sallie Mae “will enhance its efforts to ensure that students understand all lower-cost (i.e. federal loans) options before taking out private loans.” Higher Ed Watch applauds that goal, and hopes the company goes a step futher and require its borrowers to exhaust their federal eligibility before turning to private options.

Two More Financial Aid Directors Officially Out

Two financial aid directors were forced out of their jobs this week following investigations into their relationships with a private lender. Johns Hopkins University determined that its director, Ellen Frishberg, had violated the universitys ethics and conflict of interest policies by taking $65,000 from Student Loan Xpress in consulting fees and to pay for her graduate school tuition. Columbia University also fired its director, David Charlow, for conflict of interest violations, as he had owned more than $100,000 in stock from Student Loan Xpress a fact first uncovered by a Higher Ed Watch investigation. The loan company was a preferred lender at both universities. New York State Attorney General Andrew Cuomo also faulted the two aid administrators, saying “at times, it seems that Charlow and Frishberg were working more for Student Loan Xpress than for their universities.” For example, he noted that they had drafted “talking points” for the loan company to use in response to accusations made by a competitor, MyRichUncle.

Cuomo Criticizes NASFAA’s Proposed Ethics Code

According to the Associated Press, New York State Attorney General Andrew Cuomo on Saturday blasted the National Association of Student Financial Aid Administrators (NASFAA) “for proposing a code of conduct he said fails to curb abuses in the student-loan industry that his office has uncovered.” In a letter to the organization, Cuomo described its draft proposal as “inadequate” because it simply “recite[s] vague, lofty goals of generalized ethical behavior.” Cuomo said that NASFAAs code of conduct must include prohibitions against specific improper behavior, similar to the code crafted by his office. He was especially critical of a provision in the draft proposal that would have allowed financial aid administrators to continue to accept reimbursement for serving on advisory boards or for participating in lender-sponsored training activities. Responding to the criticism, NASFAA promised to rewrite its code and said that, as part of its revisions, it would prohibit aid administrators from receiving any reimbursement or gifts from lenders.

After Long Journey, MOHELA Bill Signed into Law

Missouri Governor Matt Blunt, a Republican, signed higher education legislation into law on Wednesday that includes his plan to sell the assets of the Missouri Higher Education Loan Authority (MOHELA) and use the proceeds to finance building projects for the state’s public colleges and universities. Attorney General Jay Nixon, a Democrat who plans to run for Governor in 2008, had called on Blunt to veto the legislation. Nixon believes the legislation will jeopardize MOHELAs ability to provide low-cost loans and sets a bad precedent of politicians using student loan money to finance other priorities. Nixon also expects a number of lawsuits to challenge the legislation, possibly by student loan holders or bond holders. Blunt first proposed the sale in January 2006, and the final bill represents a major victory for him as several earlier versions were rejected by the legislature. The legislation also includes tuition caps, loan forgiveness for teachers, and more funding for state scholarships.

Also, check out Education Secretary Margaret Spellings on The Daily Show. Jon Stewart, the show’s usually “take no prisoners” host, mostly let Ms. Spellings off easy. While he made reference to the student loan scandal — pointing out an audience member who he said was “very mad” about her student loans — he did not challenge her lame “we have to fix the system comprehensively” response.