04.30.07
Another Bush Administration failure: student loan industry
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, according to documents and interviews with government officials.
The proposed policy, which Education Department officials drafted near the end of the Clinton presidency and circulated at the start of the Bush administration, represented an early, significant but ultimately abortive government response to a problem that this year has grown into a major controversy.
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 Education Department has embarked on a new effort to set rules for the industry to prevent conflicts of interest and other abuses. If approved, the rules would be implemented in summer 2008, a few months before Bush leaves the White House.
The abandonment of the 2001 proposal underscores what some consumer advocates and Democratic lawmakers believe is lax federal oversight of the financial aid system by a department they say is too cozy with the industry. More than a dozen senior department officials either previously worked in the student loan business or found high-paying jobs in the sector after they left the agency.
“The Department of Education has been run as a wholly owned subsidiary of the loan industry under this administration,” said Barmak Nassirian, a longtime advocate for industry reform at the American Association of Collegiate Registrars and Admissions Officers. “They are running the federal loan program for the profit of their friends and not for the benefit of students and taxpayers.”
Chad Colby, a department spokesman, said he was not aware of the 2001 proposal but noted that a task force was created last week to consider new rules. The department also defended its hiring of loan industry veterans, saying their expertise was invaluable, and pointed to a 2005 decision by the Government Accountability Office to remove federal student financial aid from a list of “high-risk” programs.
“The U.S. Department of Education takes its role as steward of federal financial aid very seriously,” Education Secretary Margaret Spellings, who took office in 2005, said in a statement last week.
No one has been charged with any crime in the investigations led by the New York state attorney general’s office and other agencies, but in recent weeks there have been a series of revelations about conflicts of interest and financial links among universities, lenders and government officials. Some Bush administration appointees have said they were unaware of the extent of these controversial practices.
But the 2001 policy draft shows that Education Department officials knew of the issue and that at least some saw a need to act. In addition, some industry executives had sought guidelines on what would qualify as prohibited payments, or “inducements,” from lenders to financial aid directors, according to current and former department officials. Several of them spoke on condition of anonymity because of the sensitivity of the matter.