Education Dept. Official Under Scrutiny in Student Loan Probe
Washington Post Staff Writer
Friday, April 6, 2007; Page D01
The U.S. Department of Education is investigating a senior official in its financial-aid office who owned about $100,000 worth of stock in a student loan company that has been subpoenaed by New York authorities, department officials said yesterday.
Matteo Fontana, general manager of Financial Partners Services, the department's primary contact for student loan companies, held at least 10,500 shares in the parent company of Student Loan XPress in September 2003, according to a Securities and Exchange Commission filing. At that time he oversaw the government database that contains confidential information on student borrowers.
New York Attorney General Andrew M. Cuomo this week subpoenaed executives of the lender's current parent company, CIT Group, and plans to ask them about Fontana's involvement in the company, a state official said on the condition of anonymity for lack of authority to speak publicly about the case.
The revelations are part of an expanding nationwide investigation into the $85 billion student loan industry, which is under increasing scrutiny by congressional Democrats and state law enforcement officials. Cuomo and congressional investigators are focusing on the sometimes intricate financial connections between loan companies, university financial aid officers and federal education officials.
"The Department takes this matter very seriously and our Office of the General Counsel is actively reviewing it," Samara Yudof, an Education Department spokeswoman, wrote in e-mails. "We are providing the Department's Inspector General all relevant documents regarding this matter."
Fontana did not respond to phone and e-mail messages seeking comment.
Federal regulations generally prohibit department employees from participating in matters in which they have a financial interest, but officials would not discuss whether those regulations applied to Fontana.
Lawmakers and student advocates responded angrily to the revelations about Fontana's stock holdings, which were reported yesterday on the Web site of the New America Foundation, a public policy institute in the District.
"We need to ensure that those charged with administering federal student loan programs put the interests of students first," Edward M. Kennedy (D-Mass.), chairman of the Senate Education Committee, said in a written statement. "It is inexcusable for students to be paying the price for backroom deals in the student loan industry."
Cuomo's investigation has also revealed that directors of financial aid at Columbia University, the University of Texas at Austin and the University of Southern California held shares in Education Lending Group when it was the parent of Student Loan XPress. At least two of them profited from the stock and have since been put on leave.
David Charlow, executive director of financial aid at Columbia University, earned about $100,000 from selling the stock, the New York state official said.
A spokesman for CIT Group, C. Curtis Ritter, said the transactions "occurred several years prior to CIT's acquisition of the company. We are currently seeking to determine the facts surrounding those transactions."
