UPDATE: The bill has passed, 414-3.
New legislation helping to clean up the student loan industry, the Student Loan Sunshine Act, comes as a key figure resigns:
Education Department’s Financial Aid Chief to Resign
Matthew Keenan, Bloomberg – May 8, 2007
The U.S. Education Department said its head of federal student aid, a program facing criticism and investigations for conflicts of interest, will resign in keeping with a decision made in February.
Theresa Shaw was hired as the program’s chief operating officer by then-Education Secretary Rod Paige in 2002 after working for companies including SLM Corp., known as Sallie Mae, the largest U.S. student-loan provider. Shaw will step down on June 1, the department said today in an e-mailed statement.
Lawmakers and officials including U.S. Senator Edward Kennedy, U.S. Representative George Miller and New York Attorney General Andrew Cuomo are investigating conflicts of interests in the $85 billion-a-year student loan industry. Kennedy last month requested personnel records for Shaw and 26 other Education Department employees.
Shaw’s departure is “absolutely” unrelated to the inquiries, said Samara Yudof, a spokeswoman for the Education Department. Shaw told Education Secretary Margaret Spellings in February that she planned to leave, the department said in the statement. The department expects to announce a replacement before June 1.
The congressional and state probes have revealed revenue sharing between lenders and schools, as well as gifts, payments and stock transfers to college officials who recommended lenders to borrowers.
Indeed, Chairman George Miller’s investigation has just revealed that “until recently, one of the nation's largest student lenders had hired officials from five different colleges to perform various services even as the officials continued on their colleges' payrolls.” A release just issued adds, “The lender, JP Morgan Chase, also paid over $70,000 for a harbor cruise in New York City for over 200 college financial aid officers in 2005.” Additionally, as Reuters reported in April, another figure in the student loan scandal, university financial aid officer Ellen Frishberg, “resigned from a federal rule-making panel after being asked to step down amid a widening scandal involving student loans.” Education Secretary Margaret Spellings will also appear before the Education and Labor Committee on Thursday, May 10 to discuss these issues as well as corruption in the Reading First program. (Related: Congress passed the The Improving Head Start Act of 2007 last week).
Democratic Caucus Chairman Rahm Emanuel spoke on Shaw’s resignation today:
| Rep. Emanuel: “At the Education Department, Terry Shaw is stepping down after several scandals were uncovered in the student loan industry. On her watch lenders and Education Department officials undermined the student loan program which millions of students and families count on and go to college with and achieve their American Dream. Every day we see another headline and another story. Congress does its oversight job, and another Bush Administration official at the center of a storm is eventually forced to step down.” |
And Chairman Miller opened debate on the Student Loan Sunshine Act, which has strong bipartisan support, this morning:
| Chairman Miller: “Now what we see is this program has been badly corrupted. This program has started to be hollowed out by the activities of lenders, of universities, of individuals within the government, individuals within the university system, individuals within the lending community. For six years, this administration has been put on notice of these activities taking place in the student lending program…” |
From the Committee on Education and Labor:
House to Vote Today on Bipartisan Legislation to End Unethical Practices in Student Loan Industry
Student Loan Sunshine Act Would Clean up Relationships Between Lenders and Colleges
WASINGTON, D.C. — With evidence mounting of conflicts of interest and other unethical practices in the student loan industry, the House is expected to vote later today on bipartisan legislation — called the Student Loan Sunshine Act — that would clean up the relationships between student lenders and colleges, U.S. Reps. George Miller (D-CA), Howard P. “Buck” McKeon (R-CA), and Rubén Hinojosa (D-TX) announced this morning.
“Families are already paying too much to send their kids to college, so the idea that lenders would enhance their profits — at the expense of students and families — by offering gifts or other inducements to college officials or engaging in other unethical behavior is especially abhorrent,” said Miller, chairman of the Education and Labor Committee. “This legislation would put a stop to those practices and make sure that the student loan programs operate on the level, in the best interests of students and families trying to pay for college.”
“In order to begin reaffirming trust in our nation's student aid system, all stakeholders must step up, and with this bipartisan bill, the House is stepping up in a big way,” said McKeon, senior Republican on the Education and Labor Committee. “The FFEL and other financial aid programs successfully serve millions of students and their families every year, and this bill makes our system even better. Simply put, this bipartisan effort isn't about us versus the lenders or us versus the institutions. It's about protecting the interests of millions of young men and women who expect our student aid system to be there for them when they need it.”
“The daily drumbeat of scandal in the student loan industry cries out for action,” said Hinojosa, chairman of the Subcommittee on Higher Education, Lifelong Learning, and Competitiveness. “With the Sunshine Act, we are taking a critical first step towards restoring public confidence in the integrity of our student loan programs.”
Investigations at the federal and state level and by news organizations over the last several months have highlighted a number of unethical practices in the student loan industry, such as lenders offering gifts or other inducements to college financial aid offices in exchange for higher loan volume. The Student Loan Sunshine Act would prevent these practices in the future by taking the following steps, among others:
* Requiring institutions and lenders to adopt strict codes of conduct that adhere to specific guidelines;
* Banning all gifts, participation on advisory boards, and revenue-sharing agreements between lenders and schools;
* Requiring institutions to disclose all relationships with lenders;
* Only allowing “preferred lender lists” on campuses with strict assurances that the list was created with the students' best interest in mind;
* Ensuring that students have access to all lenders of their choice, including those not on the preferred lender lists;
* Banning staffing of school financial aid offices by lenders;
* Giving students full and fair information when taking out and repaying loans;
* Protecting students from aggressive marketing practices; and
* Providing students information on all federal student aid opportunities through a new “one-stop” link on the Department of Education website.