Higher Education Push Picks Up Steam

This week was another big week for higher education and the student lending industry. Members of Congress introduced new bills, the U.S. Department of Education (ED) proposed new rules for lenders, and New York Attorney General Andrew Cuomo found himself, once again, testifying before Congress. As the accountability debates continue, the Higher Education Act (HEA) is moving toward final reauthorization after four years of extensions. As this legislative session has shown, the lending industry, and the overall cost of a college education will be the dominant issue in reauthorizing the HEA.

On Wednesday, Mr. Cuomo testified before the Senate Banking Committee on the status of his investigation into private student loans, which do not carry federal guarantees. Mr. Cuomo said he would examine whether lenders were discriminating against students based on the institutions they are attending or other factors not directly related to their credit history. This is the latest in a series of investigations Cuomo has spearheaded into lending practices. Congressional Democratic leaders are using Mr. Cuomo’s investigations to highlight mismanagement and a lack of oversight by ED. Since the beginning of the 110th Congress, many different lawmakers have introduced bills that hope to reform the lending industry, in an attempt to make a college education more affordable.
Mr. Cuomo, called the $17.3 billion market for private student loans the “Wild West” of consumer loans because it is largely unregulated and does not provide levels of disclosure comparable to the mortgage industry. This prompted committee chairman and presidential candidate Sen. Christopher Dodd (D-CT) to consider drafting tighter regulations for the private student loan market and including the provisions in a reauthorization of the Higher Education Act. Sen. Dodd wants to require lenders to clearly disclose the rates and terms of private student loans. He also wants to clarify that “kickbacks” or revenue-sharing arrangements between lenders and schools or other parties are illegal. Dodd said he is prepared to write those changes into law, but he also will push federal agencies to demand that lenders abide by those standards.
Meanwhile, ED is taking its own strides to help regulate the lending industry. Last Friday, ED proposed regulations that would prohibit lenders from giving gifts to universities in exchange for the universities directing more students to those specific lenders. The proposal also requires schools that create lists of preferred lenders to put at least three companies on the lists and provide detailed explanations of how the lists are created. The proposed rules also disclosed that recent agency investigations have found cases in which schools recommended a lender in exchange for prohibited inducements. Also last week, Lawrence Warder, ED’s chief financial officer, became the acting head of its student loan office, after Theresa S. Shaw resigned last month amid controversy. On Tuesday, U.S. Secretary of Education Margaret Spellings opened the first of five regional higher education summits by calling on Congress to enact a comprehensive HEA reauthorization bill to improve college access, affordability and accountability for all Americans.
The House passed an extension of the HEA, to last through October 31, 2007, giving Congress more time to pass a long term reauthorization, which was originally scheduled to pass in 2003. The Senate still needs to pass a similar bill. The Senate Health, Education, Labor and Pensions Committee is slated to begin marking up their HEA reauthorization bill on Wednesday, June 13.
Resources:
ED Press Release: http://www.ed.gov/news/pressreleases/2007/06/06052007c.html
Doug Lederman, “U.S. Offer Loan Reform of its Own,” Inside Higher Ed, June 4, 2007.
Amit R. Paley, “U.S. Student Loan Office Gets New Rules and a New Chief,” Washington Post, June 2, 2007.
Diana Jean Schemo, “Cuomo Broadens Student Loan Inquiry,” New York Times, June 6, 2007.
Libby George, “Dodd Wants to Boost Student Lending Industry Disclosure, Ban Kickbacks,” CQ Today, June 6, 2007.
Author: SAS