Tighter Controls Needed for Non-Profit Lender Set-Aside
The House Education and Labor Committee has taken up a bill today to eliminate the Federal Family Education Loan (FFEL) program and use the savings in part to significantly boost spending on Pell Grants. The legislation includes a provision that would provide a set-aside for all existing non-profit student loan agencies to service the loans of up to 100,000 borrowers in their home states.
Last week, we stated our opposition to this provision, which was crafted by a trade association for non-profit lenders, the Education Finance Council, and shopped behind closed doors on Capitol Hill. But if Democratic leaders insist on keeping it in the bill, they should at least bar lenders found to have deliberately overcharged the government or acted against the best interests of students from participation.
Case in point: The South Carolina Student Loan Corporation. Should the bill become law, it would give the agency, known as SCSLC, a guaranteed direct loan servicing contract in the state. But according to a recent Higher Ed Watch investigation, SCSLC appears to have used its ties to the state student loan guaranty agency to obtain excessive taxpayer subsidies from the federal government. The loan agency has allegedly done this by helping the state guaranty agency exploit an emergency program the government has in place to ensure that all eligible students are able to obtain federal student loans. The U.S. Department of Education is carrying out its own investigation of these allegations and is expected to issue a report soon.
Why would Congress provide the South Carolina agency with a direct loan servicing contract before the Education Department has had a chance to issue its findings in the case? Perhaps the House committee should make the agency's future participation in the federal student loan program contingent on the Department of Education giving it a clean bill of health. Or perhaps the Department should be given the authority to strip the agency of the set-aside if it finds that the agency has indeed exploited the FFEL lender-of-last-resort program. Otherwise lawmakers might be handing a guaranteed contract to a lender that has abused the FFEL program and imposed unnecessary costs on taxpayers.
The committee should also think twice before awarding no-bid contracts to non-profit student loan agencies, like the Kentucky Higher Education Student Loan Corporation, that were major players in the 9.5 student loan scheme. Lawmakers might also want to consider whether they want to guarantee business for the Iowa Student Loan Liquidity Corporation, which the state's attorney general found deliberately steered students to its most expensive loan products.
Time and again, the federal government has refused to hold lenders accountable for their actions. Now would be a good time to start.
Stephen Burd contributed to this post.