Congress eyes loan scandal

Lawmakers likely to curb colleges' cozy arrangements with 'preferred lenders'

WASHINGTON -- A developing scandal over ties between the student loan industry and college financial aid officers is adding momentum to a congressional push to overhaul the system for college loans.

Members of Congress say new rules, being pushed by New York Attorney General Andrew Cuomo, on how loan companies deal with campuses should be applied nationwide.

"The case for major reform cannot be clearer. Our current student loan system is broken and national reform is required," said Massachusetts Democrat Edward Kennedy, who leads the Senate education committee.

Kennedy and Rep. George Miller, D-Calif., who heads the House education committee, are leading the push for congressional action. The top Republican on the House committee, California Rep. Buck McKeon, also says Congress must pass legislation to curtail the problems found by Cuomo, who is to testify before the committee next week.

Cuomo says his investigators uncovered arrangements that benefited schools and lenders at the expense of students. For example, investigators say lenders have provided all-expense-paid trips for college financial aid officers who then steered students to the lenders.

Cuomo's office has found that loan officers at a few schools had stock in a company that owned Student Loan Xpress, which was on the schools' preferred lender lists.

Miller called on the Education Department on Wednesday to temporarily ban colleges from using preferred lender lists.

Cuomo's investigation has elicited public outrage, making it all but certain that Congress will act, says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

"The main legacy of the investigation I believe is that it opened up space for political reform," Nassirian said.

Others say legal agreements Cuomo is reaching with lenders and schools must become uniform.

"This is a federal program," said Terry Hartle, senior vice president of the American Council on Education, an umbrella group of colleges and universities. "In a federal program, you're better off having one code of standards than fifty."

Cuomo has agreements with industry leaders Sallie Mae and Citibank and some colleges in which the lenders and schools will adopt a code of conduct. Many in Washington, from both parties, see the code as a potential model for a federal law.

The code bans lenders from paying colleges in exchange for being designated a preferred lender. It also bans lenders from paying for trips for financial aid officers and other college officials. Lenders also cannot pay college employees to serve on advisory boards.

The prohibitions are similar to restrictions in legislation that Kennedy and Miller are pushing. The lawmakers introduced their legislation before Cuomo's investigation made headlines this month; the measure has gained momentum in light of the investigation.