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The Honolulu Advertiser
Posted on: Thursday, May 10, 2007

New rules for college lenders get House OK

By Amit R. Paley
Washington Post

WASHINGTON — The House voted overwhelmingly yesterday to bar student loan companies from offering perks and financial incentives to universities to drum up business, the first federal legislative response this year to mounting criticism of the $85 billion-a-year industry.

The bipartisan bill, approved by a 413-3 vote, would increase federal regulation of student loan companies. The industry has come under scrutiny from federal and state investigators over its financial ties with schools and government officials.

The measure drew support from advocates of students and from some key players in the loan industry — a rare overlap of views for the interest groups.

"This legislation would protect students and families from the corrupt practices and abuses that for too long have been allowed to run rampant within the student loan industry," said Rep. George Miller, D-Calif., chairman of the House Education Committee and the bill's lead sponsor.

The Senate is likely to approve a similar measure soon, congressional aides said. The Bush administration is "generally supportive" of the legislation, said spokesman Scott Stanzel. Passage of the bill, the Student Loan Sunshine Act, came as Education Secretary Margaret Spellings prepared to face questions today from Miller's committee over the student loan controversy and other matters. Critics say the administration has been lax in its oversight of the industry, a charge Spellings rejects.

The bipartisan support for tighter control of the industry reflects the growing political potency of the issue since an investigation by New York Democratic Attorney General Andrew Cuomo revealed alleged conflicts of interest among university financial aid officers and questionable business practices by lenders. The nation's four largest lending companies and 22 schools have agreed to abide by a code of conduct, developed by Cuomo's office, that bans many of the most controversial practices.

The legislation passed by the House would forbid lenders to offer gifts to financial aid officials, to provide staff members for school financial aid offices or to pay schools for steering student business their way.

The measure also would require schools to disclose financial relationships with loan companies.

Several lawmakers and student advocates, though, said the legislation did not address what they see as the biggest problem: the billions of dollars a year in federal subsidies given to private lenders instead of students.