Top Private Education Lender Cuts Jobs

The Senate Finance Committee opened an investigation into the company last week, saying that the Post article "raises serious questions" about the lender's nonprofit status. The Internal Revenue Service and the New York attorney general's office are also investigating EduCap, and the chairman of the House education committee has asked the Government Accountability Office, an investigative arm of Congress, to look into the nonprofit lending industry.

The chairman and ranking Republican on the Senate Finance Committee said they continue "to expect a full, complete response to our questions" despite the layoffs. "We hope that all records needed to respond to our inquiry remain accessible and intact, and that any loss of personnel won't hinder the response," Max Baucus (D-Mont.) and Charles E. Grassley (R-Iowa) said in a statement.

On Capitol Hill, the Senate Banking Committee approved a bill, sponsored by Sen. Christopher J. Dodd (D-Conn.), that would require private lenders to give approved student borrowers an extra 30 days to shop for a lower rate, inform applicants of their eligibility for lower-cost federal loans and take other steps to increase market transparency and curb what critics call deceptive business practices.

Also yesterday, the Government Accountability Office concluded in a report that the Education Department should beef up oversight of lenders that participate in federal student loan programs. It found that the department has taken few steps to enforce rules that prohibit lenders from offering certain financial favors, or "inducements," to help them obtain more customers on campus.

In the past 20 years, the report found, the department has sought sanctions twice against lenders for violations of the inducement rules. In 1988, the department disqualified one lender from the Federal Family Education Loan Program, and in 1995 it sought to limit participation of a second lender. "More frequently, Education has written letters to offending parties . . . instead of imposing sanctions," the report found, "but it has not routinely assessed the effectiveness of these letters."

The department agreed with some GAO recommendations for stronger oversight and said it has moved toward issuing new industry regulations. But Lawrence A. Warder, acting chief operating officer for the department's Federal Student Aid office, wrote that "under existing law, the department's authority to take action regarding some of these practices is limited."

Congressional Democrats, who requested the report, said it provides evidence of lax enforcement by the Bush administration. "Lenders continue to take advantage of students entering college and the Department of Education is not doing enough to prevent it," Senate Majority Whip Richard J. Durbin (D-Ill.) said in a statement. "Parents and students have placed their trust in a department that is not living up to its responsibility."

Staff writer Michael Alison Chandler contributed to this report.