By: Gaurav Bhola, MSM, Managing EditorAs the student loan scandal of 2007 fades into oblivion, students and their families are still not any closer to getting the comprehensive reforms Congress and the regulators promised. Last year, an investigation led by New York Attorney General Andrew Cuomo into the college loan practices of private loan lenders and universities finally brought into the spotlight this diabolical coalition. A New York Times expose lead to Cuomo’s inquiry which revealed that some schools were receiving bribes from lenders in return for steering students to their loan programs.
The investigation revealed financial aid officials and other college officers receiving direct kickbacks from certain lenders in the form of trips, stock options, lunches, and so on.
However, the New Year has been dominated by other headlines; the student loan “scandal” seems forgotten. Meanwhile, Cuomo has moved on to greener pastures. And Congress’s impetus has also cooled, even though some action had been taken by them for example ending the government subsidies given to private school lenders.
Still, college and university loan lenders are not out of trouble yet. The U.S. Department of Education is beginning with administrative inquiries and enforcement actions that will become prominent in 2008. In the latter half of 2007, Congress and the General Accountability Office, amplified their oversight of the schools and the private lenders, as the Federal Student Aid (FSA) office sent official letters to 921 colleges whose school loan volume was mostly, if not completely, with one private lender.
The letters were serious in tone and message, intending to remind universities that their actions had to take into account only students’ interests and mustn’t violate the Higher Education Act of 1965 and its amended regulations. Out of the original 921 colleges, 55 colleges and 23 lenders received notification requesting documents and information that may show documentation of improper allurements and inducements of financial aid officials. It is likely that there will be some enforcement action by the Education Department in 2008.
But the U.S. Congress has more power to bring about change than a federal government department. For example, last year Congress passed an amended version of the Student Loan Sunshine Act. by a vote of 414-3, the bill would force colleges and loan lenders to follow stringent codes of conduct; provide full disclosure of school-lender alliances; ban lender gifts to financial aid officers; and protect students from perpetual marketing practices.
The current state of the economy has shifted the focus in Congress from the student loan industry discrepancies. The government is concentrating instead on the credit crunch, housing and mortgage markets. The remedy of the college loan industry is an afterthought, no longer on their radar. While, Congress shows apathy towards the students and their families, certain private loan lenders and colleges rejoice in the legislature’s disinterest.
