Spellings Defends Loan-Program Oversight
By Anne Marie Chaker and John Hechinger
The Wall Street Journal
Friday, May 11, 2007
WASHINGTON -- Education Secretary Margaret Spellings defended
her oversight of the federal college-loan program, even as a top
House Democrat disclosed that the Justice Department has opened
an investigation into the Education Department's treatment of a
major student-loan company.
At a House Education and Labor Committee hearing yesterday, Ms.
Spellings said the system she heads is "broken," but defended
her stewardship of it, arguing that the problems predate the
Bush administration. She assembled a task force last month of
department officials to look into colleges referring students to
"preferred" lenders and the inducements those lenders make to
schools to promote their services. She said it reported back
with recommendations that included a bar against schools
recommending only one or two lenders as "preferred."
Committee Chairman Rep. George Miller (D., Calif.), however,
contended that the department shirked its responsibility in
overseeing colleges and student-loan companies. "Did nobody at
the department think of picking up the phone and saying, 'You've
got to stop this'?"
He also announced that the Justice Department is now looking
into the department's audit of student-loan giant
Nelnet Inc., but it is unclear what action, if any, the
department might take.
In a September 2006 report, the Education Department's inspector
general detailed how Nelnet had figured out a strategy to
collect about $278 million in what the report said were
excessive payments from the government from January 2003 through
June 2005. The report recommended that officials require Nelnet
to return those "overpayments." Despite the inspector general's
report, the Education Department announced in January that
because of the prospect of lengthy litigation, it would let
Nelnet keep the overpayments, but close the loophole that
allowed the payments.
Nelnet spokesman Ben Kiser said following the settlement, the
company was advised that the Civil Division of the Justice
Department had opened a file regarding the matter, and added
that "we are cooperating with the Department of Justice."
An Education Department spokeswoman referred calls to the
Justice Department. The Justice Department had no immediate
Meanwhile yesterday, New York Attorney General Andrew Cuomo
announced a settlement with Student Loan Xpress Inc., a unit of
CIT Group Inc. Student Loan Xpress had provided stock or
other payments to six college financial-aid officials, including
those at Columbia University and Johns Hopkins University,
investigators said. The schools have recommended the company's
loans to students. An Education Department financial-aid
official was placed on leave last month after it was disclosed
that in 2003 he held $100,000 of stock in the parent company of
Student Loan Xpress.
Mr. Cuomo said that, along with paying for meals and trips,
Student Loan Xpress provided personnel at no charge to
financial-aid offices and offered free printing and other
services. CIT agreed to pay $3 million to a financial-aid
education fund for high-school students and their families.
Write to Anne Marie Chaker at
email@example.com and John Hechinger at