Capitol Hill tackles student loan issue

As the investigation into the student loan industry continues, politicians, higher-education organizations and University administrators are expressing hope for the future of student loans.

This discussion comes on the heels of the recent findings by New York Attorney General Andrew Cuomo, who revealed suspicious practices in the student loan and financial aid industries at universities around the country.

Penn, for example, was found to have an undisclosed revenue-sharing agreement with Citibank. Other schools implicated in the case were found to have deeper ties with lenders, including officials who held stock in aid programs they were recommending to their students.

Since then, on Capitol Hill, where legislators have long been discussing college affordability, Sen. Edward Kennedy (D-Ma.) is working to hold the student loan industry more accountable.

"The senator wants a complete overhaul of the system," said Kennedy spokeswoman Melissa Wagoner. "There's no oversight in the private loan system as it stands right now."

One of the ways he hopes to do that is through legislation like the Student Loan Sunshine Act introduced by Kennedy and Sen. Richard Durbin (D-Il.) on Feb. 1.

This act would require full disclosure of all special arrangements between lenders and universities; forbid any gifts from lenders to college employees worth more than $10; require that universities explain why a lender is placed on their preferred lenders list; and encourage students to use government loan programs before turning to private lenders.

The student loan issue is even permeating the 2008 presidential race.

"We need to fix the student loan program to take banks - which are just an expensive middleman - out of the process and focus on making sure young people aren't crushed by debt by the time they leave college," presidential hopeful John Edwards said in a campaign statement. "We should make all loans directly from the Education Department, like a quarter of college loans are already."

Other organizations, like the Washington, D.C.-based National Association of Financial Aid Administrators, are equally interested in increasing government aid.

"If students and families were able to have their financial need met by federal student aid, . a lot of these issues would take care of themselves," NASFAA spokesman Justin Draeger said.

NASFAA has been calling on legislators to either increase the amount of federal aid available in the form of grants or, "if nothing else, to at least increase federal loan limits so students can stay in federal loan programs that offer them protections that private loans don't," Draeger said.

As for reforming the private loan system, some are less optimistic.

"There are people on the Hill that are committed to meaningful reform, but the problem is the industry throws so much money around - it's breathtaking," Barmak Nassirian, associate director of the American Association of Collegiate Registrars and Admissions Officers, said.

AACRAO's main policy goals include simplifying the private student loan system and preventing potentially compromising university-lender relationships.

"We need to make sure that there is no circumstance that even theoretically places the advice being dispensed in any way in conflict with the best interest of the borrower," Nassirian said.

Back at Penn, administrators continue to support cooperation between universities and lenders.

"If we're not allowed to do that, or if students aren't familiar with choices, then they may be inundated with lenders who might be offering things which are not as good as others," Associate Vice President for Finance Frank Claus said.

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