New York Attorney General Andrew Cuomo has led the charge against deception in the student loan industry, and members of Congress should pick up the cause to protect millions of students and families from being hurt by a system that is supposed to help them.
The U.S Senate Banking Committee is looking at new ways to police the business of loans for higher education - a business Cuomo found in a national investigation to be full of abusive practices. As a result, the New York Legislature and Gov. Elliot Spitzer last month enacted the first legislation in the country aimed at ending the widespread conflicts of interest in this sector of lending.
Based on what Cuomo found, such measures are desperately needed at a national level. The investigation uncovered, among other things:
• Illegal steering to preferred lenders by specific schools.
• Revenue-sharing agreements between schools and lenders.
• University financial aid call centers staffed by lender employees.
• Gifts and trips from lenders to a school's financial aid directors.
In exchange for the financial favors, colleges were referring students and families to those lenders. Families usually presume financial aid offices are giving advice in the best interest of the students, but that was far from the case.
Cuomo's investigation resulted in settlements with the nation's five largest student loan providers, and with 25 schools agreeing to sign his code of conduct, which will prevent some of the widespread conflicts found to be taking place between lenders and colleges. Nine of the schools have agreed to reimburse students more than $3 million for the cost of revenue-sharing agreements. Some lenders also have agreed to contribute $9.5 million to a national fund established by Cuomo that will educate high school students and their families about the financial aid process.
The new law in New York - the Student Lending Accountability, Transparency and Enforcement Act- took effect at the end of May. The U.S. Department of Education should launch its own investigation to find out why oversight agencies did not police the student loan marketplace and prevent abuses at the cost of unsuspecting borrowers.
It's time to change the scenario so students and families can trust the lending system so many need to achieve their education goals.
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