- The Washington Times - Wednesday, May 9, 2007

The House yesterday overwhelmingly approved legislation that cracks down on conflicts of interest in the student-loan industry, after nationwide investigations found kickback schemes and other deceptive practices between lenders and college officials.

“We will not allow this to continue,” said House education panel Chairman Rep. George Miller, California Democrat.

The bipartisan bill — placed on the House fast-track Tuesday night and approved yesterday on a 414-3 vote — combines suggestions from the panel’s Democrats and Republicans, who said they hope the Senate will quickly follow their lead.

Republican Reps. Jeff Flake of Arizona, Ron Paul of Texas and Lynn Westmoreland of Georgia voted against the bill.

An ongoing and widening nationwide probe of the $85 billion-per-year student-loan industry by New York State Attorney General Andrew Cuomo uncovered several problems, including a common revenue-sharing setup under which a lender would pay a college a percentage of the loans it receives from the school’s students. It also found lenders giving trips and other perks to school financial-aid officials to curry favor and schools using “preferred-lender” lists to steer students towards particular lenders without fully explaining why those lenders were best.

Members lamented that the questionable practices are occurring as students and families struggle to pay for the ever-rising cost of college.

“We have the responsibility to protect and encourage those young people,” said the education panel’s top Republican, Rep. Howard P. “Buck” McKeon of California, who helped Mr. Miller craft the bill.

The measure — which combines parts of Mr. McKeon’s bill and Mr. Miller’s bill — would ban all gifts, participation on advisory boards and revenue-sharing agreements between schools and lenders, and require the two groups to adopt strict codes of conduct. Schools would have to disclose all relationships with lenders and ensure that “preferred-lender lists” are used only to promote the students’ best interest. It also would require that students receive full information about all their loan options.

In the wake of Mr. Cuomo’s revelations, Mr. Miller and other lawmakers began investigations of their own and introduced legislation. Today, Education Secretary Margaret Spellings will testify before Mr. Miller’s panel about the department’s efforts to better manage the federal student-loan program as well as the Reading First Program, which has run into management problems of its own.

On Tuesday, the Education Department said Terri Shaw, chief operating officer of Federal Student Aid (FSA), will leave the department on June 1, but said she first decided that in February.

Mr. Cuomo’s efforts have spurred voluntary reforms from many lenders and schools. To date, five major lenders and 22 schools have signed onto a code of conduct that outlaws many of these practices, similar to the House bill.

Senate education panel Chairman Edward M. Kennedy, Massachusetts Democrat, said he will include a student-loan reform package in a larger bill to renew the Higher Education Act. The Senate panel will vote on the higher-education bill in June, an aide said. Mr. Kennedy also praised Massachusetts Attorney General Martha Coakley for starting her own investigation into the student-loan industry.

House members said the bill is just the first step.

“We are not done in cleaning up the mess,” said Rep. Rahm Emanuel, Illinois Democrat.

Some Republicans, while generally supportive of these efforts, worry that Democrats will use the debacle to expand direct federal control of student loans.

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