Department of Education

The Proliferation of Federal High School Intervention Programs

Jennifer Cohen — Thu, 19 Nov 2009 20:58:00 -0500

The dismal state of America's high school graduation rates - less than 75 percent nationally and below 50 percent in some areas - has become a key federal public policy issue in the last decade. Existing federal programs, including TRIO and GEAR UP, already seek to improve high school graduation and college going rates in underserved populations. But recent developments, the Student Aid and Fiscal Responsibility Act, and President Obama's 2010 Budget Request, have brought new high school intervention programs to the table. Are these programs really all that different? And what resources could the federal government commit to these efforts?

TRIO/GEAR UP
TRIO Talent Search, TRIO Upward Bound, and the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) are three existing federal programs that attempt to increase high school graduation and college going rates in low-income students through small programs aimed at individual students or groups of students. These programs include out-of-school programs or pull-out sessions during the regular school day, after-school and weekend instruction, tutoring support for core academic subjects and college and financial aid applications, and counseling, mentoring, academic support, and college outreach services.

Research suggests that TRIO/GEAR UP are inadequately funded and contain significant overlap and redundancies. While evaluations favor GEAR UP somewhat, neither program has shown significant benefits. In fiscal year 2009, GEAR UP received just over $313 million and the TRIO programs received $905 million in federal funds. The President's 2010 budget request funded both programs at 2009 levels.

Student Aid and Fiscal Responsibility Act (SAFRA) Proposed Programs
The House passed its version of the SAFRA bill in September including a College Access and Completion Innovation Fund and an American Graduation Initiative, both aimed at increasing college going and graduation rates, but not through interventions in high schools. Although the Senate has taken no action on companion legislation, an unofficial Senate version of SAFRA has circulated within the education policy community that contains a new high school program called the Pipeline to College Initiative.

This five-year, $2.5 billion program ($500 million annually) would provide competitive grants to states to improve student achievement and graduation rates and implement various high school reform and improvement systems in schools with particularly low graduation rates. This proposed reform program requires states that receive awards to annually evaluate high schools based on a series of benchmarks to determine whether they are making continuous and substantial progress toward academic goals.

Additionally, under the proposed Pipeline to College Initiative participating states must create early warning indicator and intervention systems for struggling students and distribute grants to local education agencies to implement school improvement programs in failing high schools.

Unlike the TRIO and GEAR UP programs, which are small programs aimed at select students within schools, the Senate Pipeline to College Initiative would use a whole-school approach to high school interventions, seeking to improve the system in which struggling students receive their educations rather than supporting them individually.

President's Budget Request
The President's 2010 Budget Request, and House and Senate 2010 Appropriations bills pending in Congress, all include a new $50 million program called the High School Graduation Initiative that would provide grants directly to local education agencies to run intervention programs for schools and students. Much like the Senate's Pipeline to College Initiative, it would provide funds for the creation of early warning indicators for struggling students and allow for partnerships with outside organizations. The funds could also be used to create comprehensive plans for keeping at-risk students in school or bringing students have dropped out back into the system. The program is meant to provide opportunities to evaluate and learn from new innovative programs at the local level that could later be expanded.

Should Programs Focus on Schools or Students?
The existing and proposed high school programs vary widely in cost ($50 million for the High School Graduation Initiative versus $905 million for TRIO) and more importantly on whether they focus on groups of students or entire schools. While TRIO and GEAR UP provide assistance to groups of students from low income families, the Pipeline to College and High School Graduation Initiative involve reforms at the school level and extensive use of data. Conflicting evidence exists on the successes of GEAR UP and TRIO, so it is unclear if programs directed at groups of students are enough to propel America's high school graduation rates above 75 percent. The new approach envisioned in the Pipeline to College Initiative and the High School Graduation initiative will provide a glimpse into the potential for programs directed at entire schools, not just a handful of students.

Greetings from the Financial Aid Office!

Ed Policy — Thu, 19 Nov 2009 16:30:00 -0500

[Last week, we reported (see here and here) on the fact that some of the student loan industry's most fervent supporters in the financial aid world are potentially putting their schools and students at risk by refusing to take even the initial steps to prepare for a possible shift to direct lending next fall. Since then, we've been wondering how these aid directors would explain their inaction to students. So, after hearing the comments that financial aid administrators and lenders made at last week's Lexington Institute event and on the Finaid-L listserv, we decided to write up a fictional account of how these aid officials might explain themselves. We hope you enjoy it.]

Dear Students,

As you may have heard, we have recently taken action that could potentially disrupt your ability to obtain federal student loans next fall. But we want to assure you that there is absolutely nothing to worry about. Our good friends in the student loan industry have a sure-fire strategy in place to stop any efforts in Washington that would force us to change the way we do business. And for that we're very grateful because we can't imagine doing things any other way.

Here's some background. Last month, we received a letter from U.S Secretary of Education Arne Duncan urging us to take at least the initial steps to become "Direct Loan-ready" for the 2010-11 academic year. As you may know, the Obama administration has proposed ending the Federal Family Education Loan (FFEL) program in favor of 100 percent direct lending. Under the plan, tens of billions of dollars in savings from making the switch, and eliminating lender subsidies, would be used to provide a substantial boost in spending on Pell Grants, which go to the most financially needy students. This may sound good but it won't help us much because we don't enroll many of those students. In other words, the upper middle income students we predominantly serve will be left out in the cold!

Now it's not exactly clear where this legislation is headed. As of now the measure appears to be stalled in the Senate, where the never-ending health care debate drags on. But even if this bill doesn't go anywhere, we won't be out of the woods. That's because a federal law that has been propping up the FFEL program over the last year and half -- known as ECASLA -- is set to expire in July and neither the Obama administration nor Congressional Democrats want to extend it. If lenders can't get access to government financing to make federal student loans, the FFEL program will be sunk. At least that's the excuse Secretary Duncan is giving us for why we need to be prepared to flip the switch. But we told him to take a hike. That's a lot of nerve, telling us how to run a federal program that benefits students.

You see we used to be in the Direct Loan program more than a dozen years ago, and the program ran into some administrative difficulties. At the same time, Republican Congressional leaders tried to kill direct lending, and when that failed, they did everything they could to put it at a competitive disadvantage to FFEL, including preventing the U.S Department of Education from being able to market the program to schools and preserving generous subsidies for lenders that they used to woo financial aid offices like ours. So it is not surprising that we had lenders literally banging down our doors each week trying to convince us to switch back to FFEL. Some of the offers they made were just too good to pass up, and they are worth holding out for despite what the Obama administration says! [Enough said about that. We don't want to get into any details just in case that jerk Cuomo gets hold of this letter -- no offense intended, of course, Mr. Attorney General.]

Yes, we know that some of our colleagues in the financial aid world have made the switch to direct lending and say that it went much more smoothly than they had imagined. The problems we experienced a dozen years ago have long since been fixed, they say, and in fact are ancient history. But do we really want to take that risk? Our lender friends -- at least those that in the student loan business because of the help they received as a result of ECASLA -- say we shouldn't. Because after all, what has the government ever done right?

So please don't be worried about your loans because there's really no need for concern. Our friends in the loan industry assure us that they can spread enough fear and confusion on Capitol Hill to convince Congress that a switch to 100 percent direct lending would lead to a catastrophic breakdown. But in order to help them, we must do our part. If enough colleges like us dig in their heels, and refuse to take even the most rudimentary steps to prepare, we may be able to help lenders scare lawmakers away from enacting any real student loan reform and maybe even get them to extend ECASLA for another year.

So have no fear. This is definitely a gamble worth taking. Because if there's anything the loan industry does well, it's spreading fear and confusion. What else do you think they hire those high-priced lobbying and communication firms to do?

Sincerely,

Your trusty financial aid director

Comparing House and Senate School Facilities Programs in the Student Loan Bill

Jennifer Cohen — Tue, 17 Nov 2009 20:31:00 -0500

In July we analyzed funding for K-12 school facilities in the student loan reform bill, the Student Aid and Fiscal Responsibility Act, as passed by the House Education and Labor Committee. The full House passed the bill in September and preserved the $2.0 billion per year school repair program. Although the Senate has not yet acted on a similar student loan reform bill, a version drafted by the Senate Health, Labor, Education and Pensions Committee was leaked a couple of months ago. The leaked bill suggests the Senate is headed in a different direction than the House when it comes to funding school facilities construction.

Both of these pieces of legislation provide a glimpse into the federal government's first major foray into directly funding K-12 school facilities and neither propose an insignificant amount of money. The most striking difference between the two versions is that the House includes a two-year, formula-based investment in K-12 school facilities, and the Senate bill creates a five year competitive program for K-12 school repair, renovation, and construction.

The House bill distributes funds for repair, renovation, and modernization among states and school districts according to each state and district's share of total federal Title I dollars. This means that every school district in the nation that receives Title I funds will receive some share of its state's school facilities funds after the state withholds up to 1 percent for administrative purposes.

Unfortunately, the House bill spreads just over $2.0 billion in each year over more than 13,000 eligible school districts. In the end, it's likely to amount to a drop in the bucket relative to the total expense of modernizing schools. Additionally, the House bill prohibits spending on new school construction, with the exception of $30 million each year for Louisiana, Mississippi, and Alabama.

The leaked version of the Senate bill, however, avoids the danger of spreading the funds too thin by creating a competitive program administrated by the states but funded by the federal government. Essentially, the program distributes $500 million each year from 2010 to 2014 to states according to their share of Title I funds, much like the House program. However, once states receive their funds, they must create a competitive grant program through which they will award funds to selected school districts and charter schools within the state.

The Senate version does place some restrictions on how the funds must be divided among schools. For example, the proportion of each state's facilities funds distributed to charter schools must reflect the proportion of funds that charter schools receive under Title I. For example, if charter schools received 30 percent of a state's Title I allocation, then 30 percent of the state's facilities funds must also be awarded to selected charter schools. Similarly, the Senate legislation states that the competitive grants must be awarded to both selected high-need and rural school districts in proportion to the amount of Title I funds each type of school receives. Any remaining funds can be distributed to regular, high-need, and rural districts or charter schools as the state sees fit.

Additionally, the Senate bill outlines some priorities for the competitive grants including districts with large impoverished populations, high need for school repair and construction, plans to support "green" practices, or a lack of fiscal capacity to fund construction or repair activities.

The Senate bill also requires that school districts provide matching funds for the federal grants for facilities they receive. However, the required match amounts can be determined on a sliding scale based on the relative size of the impoverished population in each district in a state. Charter schools are not required to supply matching funds.

In all, the Senate program for school facilities is much more likely to have a lasting impact on the condition of school buildings in America. It provides consistent funding over five years, rather than two, for select districts and charters identified through a competitive grant process. As a result, it will provide an infusion of funds in particularly needy schools rather than a small amount of money across the board. It also targets high-need, rural, and charter schools which typically require the most assistance with facilities. Additionally, it requires matching funds, assuring that districts and charters are committed to the facilities investments they are making and that the federal dollars go as far as possible.

The student loan legislation represents a major shift in the federal government's role in K-12 school facilities. Past efforts have mainly involved tax credit bonds and programs for schools with large populations of students that live on military bases or Indian reservations. Although we don't know whether the Senate version of the student loan bill has changed since it was leaked over the summer, we hope that it maintains the targeted and competitive aspects that are likely to make it more effective.

The Loan Industry’s Friends in Congress Go on the Attack

Stephen Burd — Fri, 13 Nov 2009 13:45:00 -0500

Earlier this week, we called attention to the fact that some of the student loan industry's most fervent supporters in the financial aid world are potentially putting their schools and students at risk by refusing to take even the initial steps to prepare for the possible shift to direct lending next fall.

This is particularly worrisome, because as we wrote, no matter what happens with the student loan reform legislation that Congress is considering, the end of the Federal Family Education Loan (FFEL) program is coming. That's because an emergency law that is currently propping up FFEL, the Ensuring Continued Access to Student Loans Act (ECASLA), is set to expire this summer and neither the Obama administration nor Democratic Congressional leaders are interested in extending it. So unless the financial markets improve enough so that lenders do not have to depend on federal financing to make government-backed loans to students, colleges will likely have to shift to direct lending.

Department of Education officials have been trying to get that message out. Late last month, Secretary of Education Arne Duncan sent a letter to colleges that have not taken any steps yet to start preparing for a possible conversion. "While there are encouraging signs that financial markets are rebounding, the most prudent course of action is for you to ensure that your institution is Direct Loan-ready for the 2010-2011 academic year," he wrote. "That way, loan access to your students will be assured."

The Education Secretary's letter set off a firestorm of controversy on Capitol Hill, with the student loan industry's closest allies in Congress falling all over themselves to be the first to condemn the Obama administration of strong-arming colleges. Both the Democrat Ben Nelson and the Republican Mike Johanns from the great State of Nelnet (whoops, we mean Nebraska) sent letters to Duncan (see here and here) last week expressing their outrage.

"The Obama Administration seems intent on denying competition and ramming through a federally-run student loan system," Johanns said in a news release. "By encouraging institutions of higher learning to move quickly to a government-run system, it appears the White House is trying to end run Congress and strong-arm its way toward nationalizing the student loan industry." [Note to Johanns, the FFEL program is a government program too.]

Rep. John Kline (pictured top left), the lead Republican on the House of Representatives Committee on Education and Labor, went even further. In his own letter to Duncan, he accused the Education Department of violating a federal law that prohibits government agencies from distributing "literature that promotes public support for or opposition to any legislative proposal on which Congressional action is not complete."

"While this debate proceeds in Congress, the U.S. Department of Education must act as an impartial agent to assist colleges and universities, not as an advocate for its preferred legislative changes to the federal student loan program," Kline wrote.

At Higher Ed Watch, we believe these allegations are outrageous. Duncan is not asking colleges to flip the switch and make the shift to the Direct Loan program right away. He is simply urging colleges to prepare for the possibility that they will have to transition to direct lending when ECASLA ends. This is indeed the prudent course to take.

After all, Obama adminstration officials know that if there are any disruptions in student loan delivery next year, Johanns, Kline, and Nelson will be among the first to go on the attack, accusing the Education Department of being inadequately prepared. In fact, these lawmakers want to have it both ways. They want to impede the Department's efforts to get colleges ready for a possible conversion but then also be able to blame the administration if any mishaps occur.

These lawmakers' constituents -- the students and families in their states that rely on student loans to pay for college -- deserve better. They need to know that the colleges that serve them are adequately prepared no matter what happens next fall.

Delay or No Delay, Change is on the Way

Stephen Burd — Wed, 11 Nov 2009 02:00:00 -0500

Back in September, we predicted that we'd all be in for "a wild ride" as legislation to overhaul the federal student loan programs makes its way through Congress. Boy, were we wrong.

Instead, progress on the legislation, which would eliminate the Federal Family Education Loan (FFEL) program in favor of 100 percent direct lending, has come to a grinding halt. Senate Democratic leaders have put the student loan bill on hold until they come to a resolution on the sweeping health care reform legislation that has deeply divided the chamber. Senate Majority Leader Harry Reid's recent admission that he may not be able to get a vote on the President's top domestic priority by year's end means that the student loan measure may not make it to the Senate floor until next January or February at the earliest.

The fate of the student loan and health care measures are intertwined because Senate leaders continue to hold out the possibility of using the budget reconciliation process (the vehicle through which the student loan bill will ultimately be moved) to push through the health care overhaul. While it seems unlikely that they will go down this route (as many of the reforms they are proposing would not survive this type of parliamentary maneuver), they may not have any other choice if they can't get the votes they need to defeat a Republican-led filibuster of the measure.

For the moment, the seemingly interminable delay appears to be playing into the hands of the student loan industry and their allies in the financial aid world. It has given industry officials (and their friends at Qorvis Communications) time to launch a large-scale effort to try and manufacture "grassroots" opposition to the legislation. It has also helped them stoke fears in Congress that colleges will not be ready to switch to direct lending before the peak student aid processing season begins.

But student loan industry officials can not take comfort in this delay. As we wrote in April, no matter what happens with this legislation, the end of the FFEL program is coming. That's because an emergency law that is currently propping up FFEL -- the Ensuring Continued Access to Student Loans Act (ECASLA) -- is set to expire next July and neither the Obama administration nor Democratic Congressional leaders are interested in extending it. So unless a miracle occurs, and the financial markets improve enough so that lenders do not have to depend on federal financing to make government-backed loans to students, colleges will have no choice but to shift to direct lending anyway.

Most loan industry officials recognize that reform is inevitable. That's why they have been pushing Congress so aggressively to adopt an alternative student loan proposal that would achieve some of the President's objectives but would preserve as much of the status quo as possible -- through carve outs and set asides for different student loan players.

Unfortunately, some of the industry's most fervent supporters in the financial aid world have not gotten the message. Instead they have buried their heads in the sand, and declined to take even the initial steps needed to prepare for the possibility that their schools will have to shift to direct lending. These school officials are the first to rail at Congress about the risk of transitioning so many schools to direct lending in such a short period of time. Yet, because of their ties to lenders, they are leaving their schools and students dangerously unprepared for such a change. If there are disruptions in loan delivery on their campuses, they will have only themselves to blame.

At Higher Ed Watch, we remain confident that Congress will eventually get the student loan reform bill back on track and pass it. But to use the delay for an excuse for inaction is simply irresponsible -- because no matter what lawmakers do, change is on the way.

Department of Education Releases Phase 2 State Fiscal Stabilization Fund Application

Jennifer Cohen — Tue, 10 Nov 2009 21:47:00 -0500

Yesterday the Department of Education released the finalized applications for Phase 2 of the State Fiscal Stabilization Fund (SFSF). The SFSF, a major component of the American Recovery and Reinvestment Act (ARRA), provides $48.6 billion in federal funds to states so that they can fill gaps in their education budgets. States that successfully complete the Phase 2 application process will receive the remaining 33 percent of their SFSF monies (unless the state was eligible to receive more than 67 percent during Phase 1). Much like the Phase 1 applications, the Phase 2 applications require state governors to sign off on a series of promises surrounding four areas of reform outlined in the ARRA. The Phase 2 promises center on the collection and public availability of data and information on each state's progress towards the reform areas.

The Phase 2 application that states must submit to the U.S. Department of Education outlines various data or information of interest pertaining to each of the four reform areas and requires governors to state whether they currently collect this data and whether it is currently publically accessible. If a state does not collect the data or make it publically accessible, governors must outline a plan and timeline for collecting the data and making it publically accessibly on the internet by September 30^th, 2011. In some cases, the application also cites existing data and asks each governor to verify whether that data is correct.

The number of indicators required for each reform area varies. The application describes seven indicators pertaining to improving teacher distribution, three indicators pertaining to improving the collection and use of data, and twelve indicators for both improving standards and assessments and supporting struggling schools.

While some of the indicators appear somewhat basic, such as the number of academic courses taught by highly qualified teachers, other indicators require states to collect and make public very complex information. For example, under improving teacher distribution, the application asks whether states currently collect and make available data on the number and percent of principals rated at each performance level under the principal rating system. This data is likely unavailable in the majority of states because principal rating systems are often locally controlled and not reported at the state level.

The application also asks states whether they collect and report the number and percentage of high school graduates who enroll in and complete at least one year's worth of college credit. This data is also unlikely to be available in most states because few have the ability to track students as they graduate high school and enter higher education, let alone whether they complete a year's worth of credit once they get there. No doubt, this data could provide much needed information on the status of college readiness in America. Unfortunately, the applications do not require states to implement the means to collect and publish this data. Instead, it only requires states to develop such means.

With respect to supporting struggling schools, the application asks states whether they collect and report data on the number and identity of low-achieving high schools that are eligible for, but do not receive, federal Title I funds. This data would illuminate the degree to which Title I funds primarily support elementary schools at the expense of struggling high schools in every state. Because Title I distributions to schools are decided at the district, rather than the state, level, this data is unlikely to be currently available in most states.

While the State Fiscal Stabilization Fund Phase 2 application will likely compel many states to collect and publically report important data that are currently unavailable like those described above, it does not require governors to get down to the nitty gritty of how they will actually further the four reform areas. In fact, governors have almost no control over how the State Fiscal Stabilization Funds are used at the local level and must hope that school district administrators try to use the funds in the most reform-focused ways possible. Without specific plans on how each state will improve teacher distribution, data collection and use, standards and assessments, and support for struggling schools it is unclear how states will bring any of these goals to fruition under the State Fiscal Stabilization Fund.

Comparing Department of Education and Recipient Reported Stimulus Data

Jennifer Cohen — Thu, 05 Nov 2009 20:40:00 -0500

When Congress passed the American Recovery and Reinvestment Act (ARRA), they included extensive data reporting requirements so that the public could closely track expenditures. Now that the recipient reported data on expenditures is publically available, tracking education funds should be easy. But as we discussed earlier this week, data reported by school districts and institutions of higher education is lacking in comprehensive information and is difficult to decipher. Unfortunately, state-level recipient reported data does not match previously available Department of Education (ED) reported data for many states, further undermining the value of the data. If the point of the data collection process was to provide accessible data on the progress of the stimulus, this data falls short of that goal.

ARRA recipients reported the total amount of federal stimulus funds they had received as of September 30^th, 2009 for all stimulus programs (except Pell Grants). This data can be compared to data ED reported on the amount of funds disbursed for the same programs. To do this comparison, we aggregated the recipient reported data on total ARRA funds received by state and compared it to ED's reports on funds it disbursed after subtracting any disbursements related to Pell Grants. We found a fair number of discrepancies between the recipient and agency reported data.

Of the 50 states, Puerto Rico, and the District of Columbia, only 27 states or territories reported grant amounts received that were anywhere near the amount that ED reported it had disbursed. The majority of these states reported slightly higher amounts of funds received than the ED agency reported data.

Of the 25 states or territories that reported data that differed from data that ED reported by more than 5 percent, 20 reported receiving higher amounts. For example, the District of Columbia reported that it had received $3.6 million in federal stimulus grants as of September 30^th. However, the ED reported data suggests that only $271,095 had been disbursed to DC as of that date, a discrepancy of 92.5 percent. Similarly, there is a discrepancy of 87.6 percent and 67.6 percent between Alaska's and Delaware's recipient and ED reported data, respectively.

Five states reported lower amounts of federal stimulus funds received than the ED reported data suggests. For example, Kansas reported that it received $42.2 million less than the ED agency reported $203.2 million, a 25.4 percent difference. North Carolina also reported that it had received $391.2 million, $61.9 million less than ED reported it had disbursed.

Without further information on how the states reported the amount they had received, it is impossible to understand why the recipient reported data differs from the agency reported data so greatly. However, these discrepancies call into question the value and validity of the recipient reported data in general. It seems that the states were either ill equipped to collect this data in such a short time span or the school districts and institutions or higher education are doing a poor job of tracking the funds as they come in. Either way, these data suggest that the current recipient reported data system will require significant refinement to become completely useful.

Complete data for all 50 states, Puerto Rico and DC is available here.

Fontana's Follies and the Downfall of the Student Loan Industry

Stephen Burd — Wed, 04 Nov 2009 00:30:00 -0500

The news that Matteo Fontana, a former high-ranking official at the U.S. Department of Education, has pleaded guilty to charges that he lied to the government about his ownership of stock in a student loan company he was in charge of overseeing provides a timely reminder of why the student loan industry is in such hot water now.

During the Bush administration, the loan industry went virtually unregulated. Top officials at the Education Department did not just look the other way while widespread abuses occurred in the Federal Family Education Loan (FFEL) and private student loan programs. They actually helped lenders skirt federal laws and regulations so the companies could maximize their profits -- often at the expense of students and taxpayers.

The government's case against Fontana provides the most glaring example of the type of conflicts of interest that were rife within a Department heavily staffed by former student loan industry officials. As Higher Ed Watch first revealed in April 2007, Fontana, the general manager of the Financial Partners Division of the agency's Federal Student Aid office, held 10,500 cut-rate insider shares of stock, worth over $100,000 in the parent company of Student Loan Xpress for nearly a year after he joined the Education Department in the fall of 2002. At the time, we did not know whether Fontana had fully disclosed his stock holdings to his superiors at the agency.

According to federal prosecutors, Fontana repeatedly lied about his stock holdings on financial disclosure forms -- falsely claiming, for instance, that he had sold his Student Loan Xpress stock in December 2002. In fact, he didn't sell his stock -- including an additional 1,400 shares he purchased while at the Department -- until 2004 and 2005, for a total of around $219,000.

Federal employees are allowed to own stock in a company but are prohibited from working on issues affecting that company if their holdings exceed $15,000. But that didn't stop Fontana, the prosecutors say. In September 2004, Fontana overruled a decision by a lower-level Education Department employee that would have prevented Student Loan Xpress from expanding its business. Company officials had asked Fontana to intervene, saying in an e-mail that the employee's decision not to bless an arrangement they had forged with the Pennsylvania Higher Education Assistance Authority had left them "at a stand still and losing business by the day." By reversing that decision, Fontana, the prosecutors charged, "did participate personally and substantially as a Government officer and employee" in "a particular matter in which [he] knew he had a financial interest."

While the charges against Fontana are serious, at Higher Ed Watch we know that they are just the tip of the iceberg. Over the last two years, we have learned that under Fontana's leadership, officials in the Financial Partners Division:

Turned a blind eye while student loan providers routinely violated a federal law forbidding lenders from providing "illegal inducements" to colleges and financial aid administrators in exchange for getting the schools to steer borrowers their way. Department officials ignored concerns about these "pay for play" practices, even from the agency's own Inspector General and lenders who complained about their competitors' activities.

Looked the other way and, in some cases, actually provided assistance and encouragement to lenders as they systematically overcharged the federal government hundreds of millions of dollars in improper 9.5 percent loan subsidy payments. As we have previously reported, officials within the division wrote a series of program review reports from 2005 to 2006 in which they signed off on some non-profit lenders' 9.5 billion practices and, in at least several cases, showed the loan agencies how they could take greater advantage of these inflated subsidies.

Allowed lenders specializing in offering consolidation loans to mine the National Student Loan Data System (NSLDS) to collect personal information about borrowers for marketing purposes. While civil service employees at the Department had loudly complained about these practices, the agency's leaders didn't do anything about it until Higher Ed Watch broke the story and the national news media picked up on our coverage.

Emphasized partnerships over compliance in overseeing lenders and guaranty agencies. As a result, the division frequently overrode decisions made by program review specialists that were critical of student loan companies and limited their ability to effectively carry out investigations of these companies' practices.

Meanwhile, Student Loan Xpress was not the only loan company that directly benefited from its ties to the general manager of the Financial Partners division. Prior to joining the Education Department, Fontana worked at Sallie Mae for 11 years. In 2004, that connection paid huge dividends to the student loan giant and its shareholders.

At the time, Sallie Mae's long-sought goal of becoming a fully-privatized corporation was effectively being held up the Department's Inspector General, who had determined that a lucrative arrangement between the company and USA Funds, the country's largest guaranty agency, violated the law and needed to be severed in order to protect borrowers. The IG argued that the arrangement effectively put the guarantor under Sallie Mae's control, creating twisted incentives that allowed the lender to reap huge profits by growing its borrowers' debt to unmanageable levels. Fontana ultimately overruled the IG -- offering the nonsensical opinion that because the Sallie Mae subsidiaries that helped manage USA Funds had separate tax identification numbers from other parts of the company, they were officially separate entities. Why the former Sallie Mae official was allowed to make ruling of such critical importance to the company has never been clear to us.

The revolving door that existed between the student loan industry and the Department of Education under the Bush administration provided license to lenders to pursue their own self interest with little regard for students or taxpayers. The level of corruption that has since been uncovered makes it abundantly clear that a fundamental overhaul of the federal student loan programs is needed. President Obama and Democratic Congressional leaders clearly recognize that a shift to 100 percent Direct Lending would make the federal loan program much less susceptible to the types of abuses that have plagued it in recent years.

So if loan industry officials are looking for someone to blame for their predicament, they need only to look to themselves and their former cronies at the Department of Education, such as Matteo Fontana, who failed to rein them in and, in fact, enabled them.

Recipient Reported Education Stimulus Data a Challenge to Decipher

Jennifer Cohen — Tue, 03 Nov 2009 21:41:00 -0500

Last Friday, the first round of recipient reported Recovery Act grant and loan data was made available on the Recovery.gov website. Much like the previously released federal contract data, this wave of data lacks the comprehensive information needed to truly determine how the funds are being spent and from what source. The data are both difficult to decipher and include several instances of human error.

While working with the data we discovered several issues that make the data difficult to understand. For example, less than half of all education-related data are tagged with the funding agency name "Department of Education." Other possible funding agencies include "Federal Student Aid," "Impact Aid Programs," "Office of Elementary and Secondary Education," "Office of Higher Education Programs," "Office of Special Education and Rehabilitative Services," "Office of Postsecondary Education," and "Office of Vocational and Adult Education."

Additionally, data that should be education-related are tagged with TAS codes that are not for education programs. As we've discussed before, the Treasury Accounting Symbol (TAS) is used to identify funding sources in each record. Of the 15 TAS codes in the education-related data, only nine of those codes pertain to education programs. The remaining six appear to be the result of erroneously entered codes. These erroneous codes account for 17 education-related records.

While helpful to a certain extent, the TAS code does not always identify specific programs. For example, the TAS code for the State Fiscal Stabilization Fund does not distinguish between Education Stabilization and Government Services Funds. Similarly, the School Improvement TAS code does not distinguish between McKinney Vento Homeless Education and Education Technology grant funds. This further information is included in the qualitative variables in the data which are impossible to categorize systematically, making it difficult to determine exactly what funding sources each record is referring to.

Significant information is missing in the sub recipient data as well (in this case, school districts or institutions of higher education are considered sub recipients). None of the sub recipient data contain information on funding agency or TAS codes, making it impossible to determine the funding sources or programs referenced in any of the sub recipient data. (We hope to receive this data with all the proper information in the near future.)

However, using the prime recipient data, we were able to extrapolate data on jobs created or saved and funds awarded, received, and expended by TAS code and by state. For example, the data we have show that a total of $58.8 billion in education related stimulus funds have been awarded. Of that amount, $14.2 billion has been received and $14.0 billion has been expended. Nearly 398,000 jobs were created or saved by the stimulus.

The amount of received funds that have been expended varies widely by state, as does the number of jobs saved. For example, Alaska has expended only 2.2 percent of its received funds, while Connecticut has expended 188.0 percent of its received funds. It is possible for a state to expend funds before they have received them because some states receive federal funds on a reimbursement basis after the expenditures have been made. It is very likely that Connecticut, and the 16 other states that have expended more than 100 percent of their received funds are on reimbursement plans for the education funds. Wyoming reported that it saved 15 jobs through the education stimulus funds, while California claims to have saved nearly 81,000.

The percent of funds expended also varies widely by program. For example, the data suggests that 108.7 percent of the received School Improvement funds have been expended while only 38.2 percent of the received Impact Aid funds have been expended. More than 100 percent of received Higher Education Program, Special Education, Title I, and School Improvement funds have been expended. The data also suggest that State Fiscal Stabilization Funds were used to save more than 316,000 jobs and special education funds were used to save more than 35,500.

It is clear that stimulus fund recipient reported data, while valuable for understanding how funds effect education and the economy, are being collected in a flawed manner. The data lack comprehensive information on funding sources, and problems with sub recipient data make it impossible to determine what is happening with the funds in school districts and institutions of higher education. Further, human error in data reporting is skewing findings. Hopefully, the Department of Education will work out these kinks as reporting continues. If not, state and local efforts to report this information may be fruitless in the end.

Complete data on recipient reported data by state and by TAS code are available here and here.

Breaking News: Criminal Charges Filed Against Matteo Fontana

Ed Policy — Mon, 02 Nov 2009 19:45:00 -0500

In April 2007, Higher Ed Watch revealed that Matteo Fontana, a former high-ranking official in the U.S. Department of Education's Federal Student Aid office, had held at least $100,000 of stock in a student loan company he was in charge of overseeing. Last week, the Justice Department filed criminal charges against Fontana on two counts: lying to federal officials about his ownership of stock in the company Student Loan Xpress and illegally using his position to help the corporation expand its business.

According to the Washington Examiner, which first reported on the Justice Department's action, the charges against Fontana are misdemeanors that each carry a maximum penalty of imprisonment for up to a year. However, The Chronicle of Higher Education reported this afternoon that Fontana has agreed to plead guilty to the charges and to pay a fine of up to $115,000. If the federal judge hearing the case accepts the plea agreement, Fontana will not have to serve any prison time, the Chronicle states.

We will have more details and commentary on this case tomorrow. Stay tuned...

Below is the text of the original April 5, 2007 Higher Ed Watch post:

EXCLUSIVE: Education Department Official Implicated in Widening Student Loan Scandal

Stephen Burd | April 5, 2007

Higher Ed Watch has learned that a top Education Department official held at least $100,000 worth of stock in a student loan company that may have substantially benefited from its ties to him.

According to a Securities and Exchange Commission (SEC) filing by Education Lending Group (see chart on page 18), the Education Department official, Matteo Fontana, held at least 10,500 shares in Student Loan Xpress as of September 2003. Fontana is currently in charge of overseeing lenders and guarantee agencies that participate in the Federal Family Education Loan Program (FFELP). Mr. Fontana's shares were offered for sale at just under $10 per share in September 2003, according to SEC filings. The extent of his total holdings in September 2003 and today is unknown.

Mr. Fontana, who is a good friend of Student Loan Xpress's president Fabrizio "Breeze" Balestri, joined the Education Department in November 2002 and was put in charge of the National Student Loan Data System (NSLDS), a gigantic computer database that keeps track of the student aid awards of tens of millions of students who have received federal financial aid.

It's unclear whether Mr. Fontana disclosed his stock holdings -- which he held for almost a year while at the Department -- to his superiors at the agency. Mr. Fontana didn't return Higher Ed Watch's calls.

Meanwhile, the Education Department released a statement late on Thursday that didn't address whether Mr. Fontana had made the disclosures. "The Department takes this matter very seriously and our Office of the General Counsel is actively reviewing it," Samara Yudof, a spokesperson for the agency stated.

What is clear is Student Loan Xpress, which started in 2001 primarily as a student loan consolidation company, stood to benefit significantly from having such a close colleague in charge of NSLDS, which includes detailed personal data on individual federal student-loan borrowers.

According to several key sources, civil service employees at the Education Department have long complained that officials in charge of the Federal Student Aid office allowed loan consolidation companies to mine NSLDS records so they could steal away borrowers from the Department's Direct Student Loan Program.

Over the last five years, private lenders have been extremely aggressive in marketing consolidation loans to Direct Loan borrowers, offering them rebates on fees and interest rates that the government does not match, despite the fact Direct Loans are less expensive for taxpayers than the FFELP alternative. According to Education Department data, as reported by The Chronicle of Higher Education, close to 800,000 Direct Loan borrowers, with a total debt of about $17 billion, left the Direct Loan program between 2003 to 2005 to refinance their loans with private loan providers, such as Student Loan Xpress.

The misuse of NSLDS by companies marketing consolidation loans and other entities appears to have been so rampant that the Department's Inspector General sent a memo to Terri Shaw, the Chief Operating Officer of the Federal Student Aid office, in 2005 demanding that the office limit access to the database. As a result of the Inspector General's prodding, Mr. Fontana sent out his own notice to lenders warning them that NSLDS information was not to be used for "the marketing of student loans or other products."

Revelations that Mr. Fontana owned a stake in Student-Loan Xpress come a day after Higher Ed Watch uncovered that financial aid administrators at three major universities had received significant shares of stock from the company. As a result of our investigation, Columbia University placed its aid director, David Charlow, on leave pending a full review by the institution. Columbia also alerted New York Attorney General Andrew Cuomo to our findings. Mr. Cuomo promptly issued a subpoena to Columbia University and sent letters to the other two universities in question -- the University of Southern California and the University of Texas at Austin -- seeking more information about the administrators' stock ownership.

Higher Ed Watch continues to believe that the problem of corruption in America's student loan system stems from excessive taxpayer subsidies going to the student loan banking industry instead of families and needy kids.

This problem has to be addressed at its root.

Michael Dannenberg contributed to this report.

Here are links to other posts we have written about Fontana's management of the Financial Partners Division of the Education Department's Financial Partners Division:

The Revolving Door and the Damage It has Done (April 17, 2007)

Friends in High Places Deliver Big for Sallie Mae Behind the Scenes (May 9, 2007)

Where in the World is Matteo Fontana? (July 8, 2008)

Case Not Closed: Matteo Fontana's Resignation Leaves Unanswered Questions (September 30, 2008)

Exclusive: Some Ed Dept. Officials Encouraged Lenders to Overcharge the Government (May 14, 2009)