Investigations into the student loan industry over the last two years have uncovered bribery with financial aid officials and government overcharges, and the reports have provoked Congress into action.
Last month, the U.S. House of Representatives passed the Student Loan Sunshine Act as part of the reauthorization of the Higher Education Act, which would ban financial aid officials from accepting any sort of gift or payment from student lenders.
Congress already cut excess loan subsidy payments to lenders last year by $20 billion to redirect those funds to students by increasing Pell Grants and lowering interest rates on loans.
An investigation by New York Attorney General Andrew Cuomo into relationships between colleges and lenders last year uncovered various instances of bribery in financial aid offices and conflicts of interest involving stock ownership.
The University of Nebraska-Lincoln was one of 60 schools involved in Cuomo's investigation because of its graduate loan partnership with private lender Nelnet since 2004.
Various Inspector General reports, most notably involving Nelnet and Pennsylvania Higher Education Assistance Agency, found federal subsidy overpayments to lenders ranging into the hundreds of millions.
The bill now awaits a vote before the Senate.
Enforcement is the legislation's major flaw because it would require the Department of Education to prove there is a "quid pro quo relationship" between gifts from lenders and the loans students get, said Stephen Burd, a senior research fellow at the New America Foundation, a nonpartisan think tank investigating the ties between student lenders and colleges.
"This is not an easy standard to prove, particularly when lenders and colleges are mostly smart enough not to put all of the details of their agreements in writing," Burd said.
Meanwhile, the student loan industry has been busy doing damage control.
The student loan industry is trying to use the subprime mortgage crisis to its advantage, said Craig Munier, UNL director of the Office of Scholarships and Financial Aid.
"The industry is using the crisis to convince Congress that it cut too deep with the $20 billion cut," Munier said.
The industry has also sought to discredit the federal Direct Loan Program, which provides guaranteed loans from the government, implying such loans cost taxpayers more than private loans, which isn't true, said Munier.
Estimates from President Bush's Fiscal Year 2009 Budget show direct loans costing less than one percent more because half of Direct Loan Consolidation loan volume comes from defaulted loans mostly from private loans.
Further inkling of an effort from some in the industry to discredit federal loans came last month when the Daily Nebraskan received an anonymous letter suggesting that the Department of Education wasn't reconciling federal aid that schools received versus what the government sent.
Munier rebuked the claims and did admit the department did have problems reconciling aid money in the early years of the Direct Loan Program in the 1990s, but reconciliation is no longer a problem.
"I wouldn't take it (the letter) very seriously when it comes anonymously," Munier said.
kevinzelaya@dailynebraskan.com
