House passes rules to govern college lending, curb conflicts of interest

WASHINGTON -- With the student loan industry coming under harsh criticism, the House approved a bill 414-3 on Wednesday aimed at curbing conflicts of interest and corrupt practices in college lending. The matter now goes to the Senate.

The bill would ban gifts from lenders to schools and impose controls on schools that publish approved lender lists to guide students to certain companies. Lenders and schools would have to make business dealings more transparent to borrowers, disclosing terms and incentives.

New York Attorney General Andrew Cuomo has been leading an investigation into the $85 billion industry that has turned up evidence that some colleges received a percentage of loan proceeds from lenders given preferred status by the schools -- a practice Cuomo calls "kickbacks." He also said some college loan officers received gifts from lenders to encourage them to steer borrowers their way.

"Some of the lenders have crossed the line," said Rep. Buck McKeon, R-Calif., who sponsored the legislation along with House Education Committee Chairman George Miller, D-Calif.

"We will not allow this to continue," Miller said, before the House approved the bill on a vote of 414-3. The matter now goes to the Senate, where similar legislation is pending.

The bill would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies. Lenders and schools would have to make their business dealings more transparent to borrowers, disclosing terms, conditions and any incentives involved.

Education Secretary Margaret Spellings is scheduled to testify in Congress on the student loan scandal and other issues Thursday.

She has come under criticism by Cuomo and congressional Democrats for what they say is weak oversight of the student loan industry. Cuomo recently accused the department of being asleep at the switch.

"Not only are we not asleep at the switch, but we are very much at the helm and managing our business," Spellings told The Associated Press in an interview Wednesday.

She said she generally supports the House bill but added that she isn't waiting for the House and Senate to come together around common legislation.

Instead, she said she has asked a Department of Education task force to come up with recommendations for new regulations to better protect against conflicts of interest between schools or school officials and lenders. The task force is expected to have final recommendations to her by the end of this month, she said, and the department will publish proposed regulations soon afterward.

They will include a requirement of at least three lenders on any school's preferred-lender list, together with an explanation of how and why they were chosen. The rules also will spell what is allowed and what is prohibited with regard to inducements from lenders to schools, she said.

The Education Department has faced allegations that it hasn't done enough to ensure department employees don't have financial ties to the student loan industry, but Spellings said some of the criticism is misdirected. She noted many of the problems Cuomo's investigation has turned up have been in the private student loan industry, as opposed to in the federal student loan programs. She said she only has oversight of the federal programs, in which the government guarantees the loans.