Democrat Demands Student Loan Reform

The chairman of the House education committee said yesterday that the student loan industry was "spinning out of control" and demanded that the Bush administration adopt emergency regulations to end bribery and cronyism in the business.

"The Department of Education has been delinquent in its oversight of the student loan industry," Rep. George Miller (D-Calif.) wrote to Education Secretary Margaret Spellings. His remarks were the strongest Democratic attack so far on the Bush administration's role in a student loan scandal that has engulfed the $85 billion-a-year student loan industry. An investigation has exposed a complex web of financial connections and conflicts of interest among lenders, universities and government officials.

Miller called on Spellings to forbid lenders from paying schools to steer students toward their loans. He also urged her to impose an immediate moratorium on schools placing any company on preferred lender lists, "until we can ensure that these lists no longer feed corruption and cronyism."

Katherine McLane, an Education Department spokeswoman, said the agency has been working for at least two years to reform the loan industry. "Rather than abruptly pulling the plug on systems American families rely on, the department has taken a more deliberative and comprehensive approach," she said.

Not all consumer advocates agreed that outlawing the lists would help students. "We are inundated with so much information that it would be extremely difficult for students to navigate an already complex system without that guidance," said Jennifer Pae, president of the U.S. Student Association.

Loan companies and congressional Republicans also oppose a moratorium.

Miller said the Bush administration has allowed federal student loan programs to be "hijacked by third parties" because of lax oversight. He said the department's inspector general should investigate all agency employees to make sure they don't have conflicts of interest with loan companies. And Miller urged the department to make public all meetings between political appointees and loan industry officials.

His remarks came two weeks after the agency suspended a senior official who held more than $100,000 worth of stock in a student loan company when he helped oversee the industry. This week, the department partially cut off access to a database with confidential information on tens of millions of students because of concerns that it was being used inappropriately by lenders.

"We are talking about a program that is spinning out of control under the watch of the Department of Education," Miller said.

Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate education committee, said he welcomed Miller's recommendations and promised to push to make them law.