Rampant abuses by lenders have followed a boom in higher-priced college loans not guaranteed by the federal government, and lax federal oversight has made the situation worse, New York's attorney general said Wednesday in Washington.
Andrew Cuomo told Congress his office has begun investigating lenders for possible discriminatory practices involving the criteria used for pricing student loans. Such criteria may include where a student lives and what type of college he attends, Cuomo suggested.
Already, his office has taken on student lenders and college financial aid officials over conflicts of interests. That includes kickbacks to college officials for steering students toward particular lenders.
Private student loans do not have their interest rates capped, unlike government-backed college loans generally do
In Iowa, the state auditor's office and some members of the Legislature have been looking into the operation of Iowa Student Loan Liquidity Corp. The non-profit company, which was created by state government and is based in West Des Moines, is the largest student loan lender located in Iowa.
The $17 billion market for private loans is "the fastest-growing segment of the student loan industry and (has) become the most fertil e ground for unscrupulous practices," Cuomo said at a hearing of the Senate Banking, Housing and Urban Affairs Committee. "Private loans are the Wild West of the student loan industry."
At the same time, he said, "The Department of Education was asleep at the switch, but so were the banking regulators -- who must now wake up and act."
Cuomo struck a receptive chord with lawmakers.
The committee chairman, Sen. Christopher Dodd, said he would consider writing legislation that would extend to student loans the sort of fair-lending laws that cover home mortgages.
The committee also will scrutinize the role of banking regulators in overseeing the private student loan industry, said Dodd, a Democrat from Connecticut.
"We need to examine this thoroughly and carefully," said Dodd, a 2008 presidential candidate. "Our country will pay an awful price indeed" if students are priced out of the market for college loans.
Sen. Richard Shelby of Alabama, the committee's senior Republican, said the committee must determine whether stronger banking laws or penalties are needed to protect students.
On the House side, a bill aimed at curbing conflicts of interest and corrupt practices in college lending won approval last month.
It would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies.
Lenders and schools would have to make their business dealings more transparent to borrowers, disclosing terms, conditions and any incentives involved.
College tuition costs are soaring and private student loans are carrying rates as high as 20 percent. Lawmakers are seeking to draw public attention to student lending issues in the way they have spotlighted the distress over high-risk home mortgages in recent months.
Cuomo and congressional Democrats have criticized the Education Department for what they say is lax oversight of the student loan industry.
But for the first time at Wednesday's hearing, Cuomo also blamed federal regulators with authority over lenders: the Federal Trade Commission, the Treasury Department's Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
All of the actions taken by his office in the student loan investigation, which covers more than 100 schools, could have been made by the regulators, Cuomo said.
In the latest developments in the wide-ranging probe, two universities announced Wednesday that financial aid directors have left their posts. Capella University said it had fired financial aid director Tim Lehmann for violating the online school's code of business conduct by accepting consulting fees from a student lender, and Widener University of Pennsylvania said financial aid dean Walter Cathie had retired.
The two had been on administrative leave since Cuomo accused them in April of accepting improper payments from a lender that they recommended to students.
Cuomo has secured settlements with Citibank, student lender Sallie Mae, JPMorgan Chase, Bank of America, Education Finance Partners as well as CIT, which is the parent of Student Loan Xpress, and 25 colleges.
Education Secretary Margaret Spellings has disputed Cuomo's criticisms. "Not only are we not asleep at the switch, but we are very much at the helm and managing our business," Spellings said recently.
Spellings noted that many of the abuses uncovered by Cuomo's investigation have been in the private student loan industry, over which her department has no jurisdiction.
In that case, the department should have referred suspected cases of abuse by lenders to the banking regulators, Cuomo said Wednesday.
Bryan Hubbard, a spokesman for the comptroller's office, said the agency "is following up with national bank lenders to determine whether they have engaged in any of the unlawful or unethical practices" cited by Cuomo. Many of the largest national banks that make student loans have signed on to a new code of ethics for college lenders, he said.
Since 2005, the agency has examined nine of the 11 largest student lenders among major national banks, Hubbard said. Complaints related to national banks' student loan practices have been a "very small percentage" of total complaints received by the agency, he said.Labels: career training, financial aid, scholarship, student loans |
