June 16, 2007
Senate Committee Issues Report on Student Loan Abuses
Senate Education, Labor, Employment and Pensions Committee Chairman Ted Kennedy issued a report (here) highlighting abuses in the student loan program in which lenders sought favored treatment from college loan officers in exchange gifts, lavish parties, and other benefits. The analysis of the Federal Family Education Loan (FFEL) program includes the following conclusions:
- Some FFEL lenders provided compensation to schools with the expectation, and in some cases an explicit agreement, that the school will give the lenders preferential treatment, including placement on the school’s preferred lender list.
- Other FFEL lenders spent large sums on travel and accommodation expenses for meetings of Advisory Boards comprised of school officials, and often expected these benefits to yield increased loan volume, or other preferential treatment, at Board members’ schools.
- School officials held financial interests, including stock and options to purchase stock, in FFEL lenders which are on the preferred lender list or are otherwise recommended to students.
- School officials received payments for consulting and other services from FFEL lenders which are on the preferred lender list or are otherwise recommended to students.
The Committee also released a number of documents (here) supporting its conclusions, including a rather embarrassing e-mail summarizing the requirements to curry favor with one large university's financial aid director and his staff. The message states that ten yearly visits are expected of "top lenders" that should include birthday parties for the director's family and free sports tickets. In a similar vein, the director "loves tequila and wine -- since becoming director . . . he has not had to buy any tequila or wine -- lenders provide this to him on a regular basis." The director has since been terminated, and probably has to buy his own tequila now, and this gravy train has probably come to a stop. (ph)
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