WASHINGTON – Federal authorities recently heard the testimony of New York Attorney General Andrew Cuomo regarding his investigation of suspected abuses in the student loan industry.
Unlike government loans, private student loans have no interest caps, and in some cases rates can rise as high as 20 percent. In Cuomo’s eyes, this makes them fertile ground for corruption.
Lenders have been accused of shady dealings with college financial aid officers, some of whom accept gifts from lenders in exchange for guiding students toward certain companies. Capella University recently fired Financial Aid Director Tim Lehmann after he accepted consulting fees from a student lender, and Financial Aid Dean Walter Cathie of the University of Pennsylvania resigned from his post. Both had been on administrative leave after Cuomo accused them in April.
Cuomo also assigns partial blame to the federal government for failing to exercise proper oversight of the situation. At a hearing of the Senate, Banking, Housing and Urban Affairs, he accused the Department of Education (DOE) of neglecting their duties.
Education Secretary Margaret Spellings pointed out that private student loans, which encompass most of the corruption, do not fall under the DOE’s jurisdiction. However, Cuomo commented on Wednesday that the DOE should then notify banking regulators.
He also listed the Federal Trade Commission, the Federal Deposit Insurance Corp, and the Treasury Department’s Office of Comptroller of the Currency as agencies needing to provide better management of the loan process. The comptroller’s office has responded by investigating national bank lenders, many of which have signed a new ethics code for college lenders.
Last month, a House bill that among other things would ban gifts to schools from lenders won approval. Senator and 2008 presidential candidate Christopher Dodd is also considering writing a piece of legislation that would extend mortgage fair-lending laws to student loans.
