- The Washington Times - Wednesday, April 25, 2007

Lawmakers yesterday said they will move to restrict questionable student-loan practices after New York Attorney General Andrew M. Cuomo blamed the Education Department for allowing improper relationships between lenders and colleges.

“This committee’s going to take action,” said Rep. George Miller, California Democrat, chairman of the House education committee.

Mr. Cuomo, whose nationwide investigation has uncovered conflicts of interest and kickbacks in the student-loan industry, told the panel yesterday “there is a crisis” that federal government should address.

“Now is the time for Congress to act,” Mr. Cuomo said. “It is not a time for task forces or study groups” — a dig at the Education Department, which this week created a task force to examine the situation, despite Mr. Miller’s call last week for more decisive action.

Education Secretary Margaret Spellings called Mr. Cuomo’s comments “ill-informed.”

“Contrary to Cuomo’s testimony today, the U.S. Department of Education takes its role as steward of federal financial aid very seriously,” she said in a statement, listing ways that the department has improved federal student-loan programs in the past, including taking “a number of steps to tighten our oversight responsibilities.”

Mr. Miller is conducting his own investigation of the problems, and Mrs. Spellings is now scheduled to testify before his panel May 10.

Mr. Cuomo said his investigators have found lenders paying kickbacks to schools based on the number of loans they receive from students there, lenders providing vacations and other perks to school financial-aid officials to curry favor and secure spots on “preferred lender” lists, and schools using “preferred lender” lists to recommend certain lenders to students and parents without fully explaining why those lenders are best.

The cases he has turned up involve private lenders, which are largely unregulated by the federal government, as well as some lenders in the Federal Family Education Loan (FFEL) program, Mr. Cuomo said. He said the Education Department has been “asleep at the switch” to let the FFEL problems occur and that federal action should include both a tightening of the FFEL rules as well as new regulation of the private lenders.

Lawmakers on both sides of the aisle agreed and have introduced bills. Mr. Miller said the committee will vote soon on a measure.

Mr. Miller has proposed a bill that, among other things, requires lenders and schools to fully disclose the nature of their relationships and bans lender gifts over $10. The committee’s top Republican, Rep. Howard P. “Buck” McKeon of California, has proposed a bill that would require schools to develop their own codes of conduct in this area, and banning revenue sharing between private lenders and colleges.

Some Republicans say they are worried Democrats will use the current situation to shift to more government-controlled loans.

Mr. Cuomo endorsed Mr. Miller’s bill yesterday. Meanwhile, Mr. Cuomo has supported a bill in New York — approved by that state’s Senate yesterday — that legally establishes a code of conduct for schools and lenders, banning revenue sharing and gifts, among other things.

His investigation has resulted in numerous schools and major lenders voluntarily signing his code of conduct — most recently JP Morgan Chase and Bank of America, announced yesterday. More will follow, he said, adding that school officials and lenders want to change their behavior because they know they must, in order to keep students’ business.

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