July 24, 2009
Tighter Controls Urged on Non-profit Student Loan Agencies
In response to a bill that was proposed last Tuesday in the House Education and Labor Committee to eliminate the Federal Family Education Loan (FFEL) program and use the savings in part to significantly boost spending on Pell Grants, some are calling for tighter controls on non-profit lender set-asides. Higher Ed Watch, having already expressed opposition to the provision that would provide a set-aside for all existing non-profit student loan agencies to service the loans of up to 100,000 borrowers in their home states, has called on Congress to at least bar the participation of lenders found to have overcharged the government or acted against the best interests of students. The article pointed to The South Carolina Student Loan Corporation to make the point:
Should the bill become law, it would give the agency, known as SCSLC, a guaranteed direct loan servicing contract in the state. But according to a recent Higher Ed Watch investigation, SCSLC appears to have used its ties to the state student loan guaranty agency to obtain excessive taxpayer subsidies from the federal government. The loan agency has allegedly done this by helping the state guaranty agency exploit an emergency program the government has in place to ensure that all eligible students are able to obtain federal student loans. The U.S. Department of Education is carrying out its own investigation of these allegations and is expected to issue a report soon.
The legislation would essentially give each and every one of the Education Finance Council’s (EFC) members a no-bid contract to service the loans in question. Higher Ed Watch, unhappy that the final provision is nearly identical to that proposed by the EFC, points out that the trade association has been quietly shopping amongst a select group of Congressional offices in recent weeks. It is calling for the federal government to start holding lenders accountable for their actions. To start, it has suggested that the committee reconsider awarding no-bid contracts to non-profit student loan agencies such as the Iowa Student Loan Liquidity Corporation, which the state’s attorney general found deliberately steered students to its most expensive loan products.
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