The Association of U S West Retirees



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 comment.

Meanwhile yesterday, New York Attorney General Andrew Cuomo announced a settlement with Student Loan Xpress Inc., a unit of financial-services firm 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 and John Hechinger at