Congress must crack down on questionable practices between student loan companies and higher education institutions to help restore consumer confidence in the $85 billion student loan industry, lawmakers and a chief industry critic said Wednesday.
Recent reports about preferred lender lists, gifts to college financial aid directors and revenue-sharing practices that give colleges an incentive to push certain loan companies are taking a toll on students and their families, said New York Attorney General Andrew Cuomo, who initiated many of the investigations.
“It is crucial that Congress act promptly to end the conflicts, perks and revenue-sharing that have cost our students dearly,” said Cuomo, the featured witness at the House hearing. His office has cited several colleges for favoring some lenders over others, often through revenue-sharing agreements that give colleges a small share of student loan proceeds. Several lawmakers have labeled these arrangements as kickbacks.
Financial aid directors at some institutions also have accepted travel and entertainment perks from lenders that appear on their colleges’ preferred lender lists.
“We’re talking about a system that is spiraling out of control,” said U.S. Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, which conducted the hearing.
Such practices have major implications for low-income and minority students, who make up a large share of loan borrowers. About 58 percent of Hispanic students and 55 percent of African American students already leave college with an unmanageable level of loan debt, compared with 39 percent of all students, says the State Public Interest Research Group. Several studies also show African American students with higher default rates.
In his testimony, Cuomo took particular aim at the U.S. Department of Education for its inaction on the issue. A department employee who managed student aid is now on administrative leave after reports that he sold considerable stock in one company, Student Loan Xpress.
