Congress has finally put its foot down after investigations into dirty relationships between private loan companies and some universities.
Congress approved the Higher Education Access Act of 2007 and the Higher Education Amendments of 2007 on Sept. 7.
The student loan overhaul in Congress will increase the loan amount that students can receive from the federal government. The bills will raise the maximum amount for Pell Grants, the basic grant for middle-and low-income students, more than $1,000 during the next five years.
To pay for the increased Pell Grants, federal subsidies to lenders will be reduced by nearly $20 billion. Sen. Edward M. Kennedy, D-Mass., applauded the bill and likened it to the GI Bill that helped many veterans go to college after World War II, according to a statement released by Kennedy’s office Sept. 7.
Loan forgiveness will be awarded to graduates who work for 10 years in a public service, such as teaching or the police force.
The bills were prompted by a probe into the student loan industry by New York Attorney General Andrew M. Cuomo. Through this investigation, Cuomo discovered that many schools and private lenders had inappropriate relationships.
Between 2005 and 2007, the University of Pennsylvania received more than $1.6 million in revenue sharing from Citibank, one of the schools preferred lenders, according to a code of conduct agreement from Cuomo’s office.
Since this discovery, Penn has agreed to reimburse students for the money it collected from Citibank. Citibank agreed to sign a code of conduct created by Cuomo for private lenders and schools.
Drexel University has also decided to refund approximately $250,00 to students affected by Drexel’s revenue sharing with Education Finance Partners, a loan-providing service. They have since signed Cuomo’s code of conduct.
The code of conduct prohibits revenue sharing between colleges and lenders. Restrictions are also set on how lenders are chosen for “preferred lender” lists at schools. Lenders are also banned from giving gifts to university employees, according to a press release from Cuomo.A report released by Kennedy further explored the questionable relationships some schools had with lenders.
The report states that “some lenders, schools and alumni associations entered into agreements that improperly constrained financial aid offices from providing unbiased and neutral financial advice to students.” Baptist Bible College and Seminary in Clarks Summit, Pa., wanted Citizens Bank to donate to a fundraiser.
According to Kennedy’s report, an employee at Citizens Bank saw this as an opportunity to do further business with the school. Lending companies Sallie Mae, Student Loan Xpress, Citibank and Citizens Bank are all under fire for revenue sharing and kickbacks. The companies are also listed on Temple’s Student Financial Services Web site as possible lenders.
Emilie Van Trieste, who spoke on behalf of financial services, said that Temple does not have a preferred lender list and that the lenders on Temple’s Web site are popular lenders used by many students who have reported good customer service experience.
Temple prefers not to comment on the lenders who were involved with revenue sharing, Van Trieste said.
Van Trieste, an administrative coordinator with financial services, also said that in the 2006 – 2007 academic year, less than 13 percent of the total enrolled population had alternative loans certified by the financial aid office.
The average amount of federal awards offered in the 2006 – 2007 academic
year for a student totaled more than $5,000.
LeAnne Matlach can be reached at email@example.com.