GAO asks for lender controls at U.S. Education Dept.

The U.S. Education Department has no oversight in place to monitor financial arrangements between colleges and lenders and has tried only twice in 20 years to sanction violators, according to a government report.
The department hasn’t offered formal guidance on improper inducements since 1989, according to the report from the Government Accountability Office, the nonpartisan research arm of Congress. The Education Department also has never established a process for addressing non-compliance with its guidelines, the GAO said in the report, distributed today by Democratic members of Congress.
“The Department of Education completely defaulted on its responsibilities to protect the nation’s student loan programs,” George Miller, the chairman of the House Education and Labor Committee, said in a statement. “There is simply no excuse for this administration ignoring repeated warnings about potential lender abuses.”
Congress, led by a Democratic majority since January, has been investigating practices in the $85-billion-a-year student-loan industry, and has passed legislation to cut subsidies for student lenders. Investigations by Congress and New York Attorney General Andrew Cuomo found that some lenders had undisclosed arrangements to provide colleges or their staffs with payments, consulting fees, company shares and other perks.
“Under existing law, the department’s authority to take action regarding some of these practices is limited,” Lawrence Warder, the department’s chief financial officer, said in a letter to the GAO on July 20.
The Education Department agrees that better oversight is needed and is addressing that concern, Warder said in the letter included with the report. The department is also implementing new procedures to investigate the relationships between lenders and colleges, he wrote.
Cuomo expanded his investigation earlier today to include 40 athletic departments, such as those at Georgetown University in Washington and Colorado State University in Fort Collins, that may have steered students to Student Financial Services Inc., also known as University Financial Services, in exchange for kickbacks.