Gifts to colleges from student loan companies more pervasive than had been disclosed

Gifts and payoffs to universities and their officials by student lenders were far more pervasive than had been disclosed and in some cases were demanded by university officials themselves in exchange for promoting lenders to students, according to a U.S. Senate report on the student loan industry.
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EARLIER: The Bush administration, fending off criticism that it has failed to provide adequate oversight to the student loan industry, has proposed regulations that would prohibit lenders from showering universities with gifts to drum up business.
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A former financial aid director at Johns Hopkins University in Baltimore who cultivated a national reputation as a stickler for ethics accepted more than $130,000 from eight lending industry companies during her tenure, twice as much money as previously disclosed.
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Wells Fargo, one of the largest companies in the student loan business, has agreed to follow a code of conduct developed by the New York attorney general’s office governing relationships between lenders and universities.
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A top financial aid officer at the Johns Hopkins University in Baltimore has resigned after an internal investigation concluded that she had violated conflict-of-interest policies and received consulting fees from student loan providers. Ellen Frishberg has been on paid leave since April 9, when the university learned that she had received about $65,000 in consulting fees and graduate school tuition from Student Loan Xpress Inc. of San Diego, a lender recommended by Frishberg's office to students and parents.
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The University of Texas has fired the director of financial aid at its Austin campus for improper conduct. The school says the director had more ties to a student loan company than had been known. He had begun recommending the lender to students a few months after he bought stock in its parent company.Click here to read The New York Time s article.

ALSO: A investigation by the university says Lawrence Burt, associate vice president and director of UT-Austin's Office of Student Financial Services, should have disclosed his ownership of stock in the parent company of Student Loan Xpress Inc. and recused himself from decisions concerning the lender. Click here to read The Austin American-Statesman article.

With scandal rattling the $85 billion student loan industry, U.S. Education Secretary Margaret Spellings told a Congressional committee that she lacks legal authority to clamp down on many abuses. Spellings faced pointed questioning at the hearing from Democrats, who accused her department of mismanagement and complacency.
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In an effort to clean up the $85 billion student loan industry, the U.S. House of Representatives has voted overwhelmingly to ban gifts and payments by loan companies to universities. The bill comes in the wake of revelations that lenders paid universities money contingent on student loan volume, gave gifts to the financial aid administrators whom students rely on to recommend lenders, and hired financial aid officials as paid consultants.
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Under criticism that it has been lax in policing the $85 billion student loan industry, the U.S. Education Department says the chief official responsible for overseeing the loan program is stepping down. Theresa S. Shaw's resignation was made public two days before Education Secretary Margaret Spellings is to testify to a Congressional committee. Spellings is expected to face tough questions about overseeing lenders’ practices and her department’s enforcement of policies against conflicts of interest.
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When Jon Oberg, a U.S. Department of Education researcher, warned in 2003 that student lending companies were improperly collecting hundreds of millions in federal subsidies and suggested how to correct the problem, his supervisor told him to work on something else. For three more years, the overpayments continued. Education Secretary Rod Paige and his successor, Margaret Spellings, argued that they were powerless to stop the payments and that Congress needed to act. Then this past January, the department largely shut off the subsidies by sending a simple letter to lenders—the very measure Oberg had urged in 2003. Lawmakers say the story of Oberg’s effort to stop the hemorrhage of taxpayers’ money opens a window onto how the Bush administration repeatedly resisted calls to improve oversight of the $85 billion student loan industry.
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The U.S. Department of Education is moving to restore loan-industry access to a national database with confidential information on millions of students, two weeks after it was shut down amid allegations of data mining and privacy violations. The agency also is tightening security in an effort to prevent computer systems from mining the 60 million student records in the database. All users will now be shown a screen of random numbers and letters and asked to type them before logging in. Alarm about the database's security is part of a growing controversy about questionable business practices in the $85 billion-a-year student loan industry.
Click here to read The Washington Post article.

The Bush administration killed a proposal to clamp down on the student loan industry six years ago following allegations that companies sought to shower universities with financial favors to help generate business. Now, as the $85 billion-a-year student loan industry faces an array of investigations into questionable business practices that some officials believe could have been curtailed by the 2001 proposal, the U.S. Education Department has begun a new effort to set rules for the industry to prevent conflicts of interest and other abuses.
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Andrew M. Cuomo, New York’s attorney general, has notified Drexel University in Philadelphia that he intended to sue it for deceptive business practices, the first time that he has singled out a university for a lawsuit in his broadening investigation of the college loan industry. Cuomo is accusing Drexel of steering students seeking loans to one private lender, Education Finance Partners, in exchange for payments from that lender based on loan volume. The attorney general's office has settled with eight other institutions that have agreed to end such practices. (New York Times)....RELATED: Drexel University says it will "vigorously defend its position" and believes "the allegations are without foundation in law or in fact." (Philadelphia Inquirer)

The U.S. Education Department has cut off outside access to a government database that contains the personal financial information of millions of student aid applicants. The department acted on concerns that loan companies or other marketers were improperly obtaining private information on potential borrowers. The shutdown is its strongest response to a broadening student loan scandal that has already implicated loan companies and caused several universities to put their financial aid administrators on leave and review their dealings with lenders. (New York Times)

Some lending companies with access to a national database that contains confidential information on tens of millions of student borrowers have repeatedly searched it in ways that violate federal rules, raising alarms about data mining and abuse of privacy. The improper searching has grown so pervasive that the U.S. Education Department is considering a temporary shutdown of the government-run database to review access policies and tighten security. Some worry that businesses are trolling for marketing data they can use to bombard students with mass mailings or other solicitations. (Washington Post)....RELATED: Edward Kennedy, the chairman of the Senate education committee, is urging the Bush administration to block student loan companies from accessing a national database that holds confidential information on tens of millions of students. (Washington Post)