On Nov. 1, the Department of Education released a new set of regulations on the student loan system. The $85 billion a year student loan industry faced a lot of scrutiny over the past year with regard to the relationships between universities and alternative lenders.
"I am pleased to see the long and deliberative negotiated rulemaking process produce final regulations that are a major step forward in improving the transparency of the student loan programs, ensuring borrower choice and restoring confidence in the federal financial aid programs," said Margaret Spellings, Secretary of Education in a press release.
The regulations were drafted after New York's attorney general, Andrew M. Cuomo, conducted an investigation into these university-lender relationships. The investigation found many cases of payoffs, kickbacks, gifts and donations given by alternative lenders to financial aid employees.
One of the most extreme cases of these inducements took place at John Hopkins University last May. Ellen Frishberg, financial aid director at Hopkins, resigned after an investigation found she had been paid $65,000 in consulting fees and $1,200 in travel expenses since 2000 by Student Loan Xpress, one of the lenders Hopkins recommended to their students. Fishberg was using the consulting fees to pay for her doctoral degree program.
"We did have one incident a little over a year ago where one employee in the office made some statements that gave the appearance of the way we handled alternative loans in a way we didn't handle them," said Barry Simmons, director of university scholarships and financial aid.
One of the primary regulations was put in place to prohibit these kinds of inducements. Many of the other new regulations deal with preferred lender lists that many universities, including Tech, provide for its students. Regulations now insist universities place at least three lenders on the list and detail why these lenders are preferred above others.
"What we provide are banks and loan companies which students have gotten loans from over the last several years," Simmons said. "Generally, the lists were constructed essentially by looking at their loan products and feeling they were good loan products and having a good experience with the lender."
Tech's financial aid office provides a list of 12 alternative lenders. Among the 12 are large companies such as SallieMae and Wachovia as well as smaller companies that are mainly for student loans, such as Campus Door and Nelnet.
Although these new regulations are just rules put forward by the Department of Education, a bill outlining the regulations has been passed through the House and is awaiting presentation in the Senate.
"I think a lot of the change in response to the investigations has already happened," said Kevin Bruns, executive director of America's Student Loan Provide. "This bill goes further and it puts it into law, because right now they are just regulations."
Spellings said that although these regulations have been long overdue, she is not giving up on improving the student loan industry. The new regulations are to be put into effect this July and will hopefully provide students with a renewed sense of trust in the financial aid system.
"The sooner people have full confidence in the financial aid system, the better," Bruns said.
© 2007 The Collegiate Times via U-WIRE