Repugs foxes in the Education henhouse, yawn.

[boutons_]

Warnings On Student Lenders Unheeded

Bush Aides Derailed New Rules in 2001

By Amit R. Paley
Washington Post Staff Writer
Tuesday, May 1, 2007; A01


The Bush administration killed a proposal to clamp down on the student loan industry six years ago following allegations that companies sought to shower universities with financial favors to help generate business, according to documents and interviews with government officials.

The proposed policy, which Education Department officials drafted near the end of the Clinton presidency and circulated at the start of the Bush administration, represented an early, significant but ultimately abortive government response to a problem that this year has grown into a major controversy.

Now, as the $85 billion-a-year student loan industry faces an array of investigations into questionable business practices that some officials believe could have been curtailed by the 2001 proposal, the Education Department has embarked on a new effort to set rules for the industry to prevent conflicts of interest and other abuses. If approved, the rules would be implemented in summer 2008, a few months before Bush leaves the White House.

The abandonment of the 2001 proposal underscores what some consumer advocates and Democratic lawmakers believe is lax federal oversight of the financial aid system by a department they say is too cozy with the industry. More than a dozen senior department officials either previously worked in the student loan business or found high-paying jobs in the sector after they left the agency.

"The Department of Education has been run as a wholly owned subsidiary of the loan industry under this administration," said Barmak Nassirian, a longtime advocate for industry reform at the American Association of Collegiate Registrars and Admissions Officers. "They are running the federal loan program for the profit of their friends and not for the benefit of students and taxpayers."

Chad Colby, a department spokesman, said he was not aware of the 2001 proposal but noted that a task force was created last week to consider new rules. The department also defended its hiring of loan industry veterans, saying their expertise was invaluable, and pointed to a 2005 decision by the Government Accountability Office to remove federal student financial aid from a list of "high-risk" programs.

"The U.S. Department of Education takes its role as steward of federal financial aid very seriously," Education Secretary Margaret Spellings, who took office in 2005, said in a statement last week.

( Margaret's lips are moving ... )

No one has been charged with any crime in the investigations led by the New York state attorney general's office and other agencies, but in recent weeks there have been a series of revelations about conflicts of interest and financial links among universities, lenders and government officials. Some Bush administration appointees have said they were unaware of the extent of these controversial practices.

But the 2001 policy draft shows that Education Department officials knew of the issue and that at least some saw a need to act. In addition, some industry executives had sought guidelines on what would qualify as prohibited payments, or "inducements," from lenders to financial aid directors, according to current and former department officials. Several of them spoke on condition of anonymity because of the sensitivity of the matter.

"We have been asked to provide guidance on whether certain practices of [private] lenders and guaranty agencies are considered to be prohibited inducements," according to the 2001 draft obtained by The Washington Post. "We are particularly concerned with allegations that some lenders and guaranty agencies have attempted to hide or disguise an impermissible offer."

Such allegations began to draw increasing attention from the department as early as 1999, according to officials.

Although investigators have found several cases in which lenders made payments to schools that steered business their way, it has not been established that those practices violate federal prohibitions on quid pro quo arrangements. The 2001 proposal addressed that challenge by saying the department would presume that a violation has occurred if a lender offers "something of value" to a school at which it has at least 20 percent of the school's loan volume.

The draft policy, known as "subregulatory guidance," was outlined in a letter by John Reeves, a Clinton-era appointee who served as general manager in a unit of the Office of Federal Student Aid and stayed on for part of the Bush administration. The office's chief operating officer, Greg Woods, another Clinton-era appointee, briefed industry groups on the proposal, according to two people who met with him. But Bush appointees quashed the rules.

"We were like, 'No, we're not going to drop a bomb on the lending community with these wacko ideas,' " said Jeffrey R. Andrade, a senior Education Department official at the time who now works for a loan company.

( wacko? Forbidding a loan company paying a school to send students to the company is wacko? )


Reeves declined to be interviewed yesterday; Woods died after leaving the government.

Not everyone agrees that the rules would have had a significant impact.

"People who wanted to work around the rules would have found loopholes, unfortunately," said John Dean, special counsel to the Consumer Bankers Association, which represents lenders and took no position on the proposal.

But Andrade, a former deputy assistant secretary in the Office of Postsecondary Education, said the 2001 proposal was "very draconian," so much so that half the schools in the country would have been found in violation of the policy. The department decided to encourage the financial aid community to draft its own voluntary standards, an effort that ultimately collapsed.

( we all know that voluntary standards and self-regulation and self-enforecment ALWAYS works, in every industry, everywhere )
It wasn't long before the department's inspector general issued the first of several reports criticizing a lack of oversight from the agency's Office of Federal Student Aid. A 2003 report to Sally L. Stroup, then assistant secretary for postsecondary education and a former lending agency executive, said the office "has never performed reviews of lenders for the specific purpose of reviewing compliance" with federal anti-inducement rules.

( anybody surprised? )

A 2006 audit sent to Theresa S. Shaw, the office's chief operating officer and a former Sallie Mae executive, said the agency's unit responsible for overseeing the lending industry "did not provide adequate oversight and consistently enforce" federal rules. Instead, the audit said, the division "emphasized partnership over compliance in dealing with guaranty agencies, lenders, and servicers."

Stroup said the department had considered issuing new anti-inducement rules in 2005, but agency lawyers objected, saying they would not be enforceable if they weren't made through a formal process. The agency decided to postpone the start of that process until last year.

"Of course, in hindsight, that wasn't such a great decision," said Stroup, now a top Republican aide on the House education committee.

The formal process that began last year considered rules similar to the 2001 proposal, but it broke down last month. Spellings then formed a task force to propose rules to take effect next summer.

Congressional Democrats and the department also are now investigating potential conflicts of interest among agency employees. One official, Matteo Fontana, a former Sallie Mae employee, was suspended early last month after revelations that he held more than $100,000 of stock in a student loan company while overseeing the industry.

( obviously, Matteo forgot he owned that $100K stock )

===================

Just more overwhelming proof that the Repugs see the federal govt, aka "It's your money", as a milk cow to enrich and protect the corps, quid pro pro, that in turn pay the Repugs to keep it up.

[Rosie O'Donnell]

:sleep

[boutons_]

Rosie, you ugly, fat, sick bitch, the forum thanks you for your animated gif.

[boutons_]

May 7, 2007

Whistle-Blower on Student Aid Is Vindicated

By SAM DILLON

WASHINGTON — When Jon Oberg, a Department of Education researcher, warned in 2003 that student lending companies were improperly collecting hundreds of millions in federal subsidies and suggested how to correct the problem, his supervisor told him to work on something else.

The department “does not have an intramural program of research on postsecondary education finance,” the supervisor, Grover Whitehurst, a political appointee, wrote in a November 2003 e-mail message to Mr. Oberg, a civil servant who was soon to retire. “In the 18 months you have remaining, I will expect your time and talents to be directed primarily to our business of conceptualizing, competing and monitoring research grants.”

For three more years, the vast overpayments continued. Education Secretary Rod Paige and his successor, Margaret Spellings, argued repeatedly that under existing law they were powerless to stop the payments and that it was Congress that needed to act. Then this past January, the department largely shut off the subsidies by sending a simple letter to lenders — the very measure Mr. Oberg had urged in 2003.

The story of Mr. Oberg’s effort to stop this hemorrhage of taxpayers’ money opens a window, lawmakers say, onto how the Bush administration repeatedly resisted calls to improve oversight of the $85 billion student loan industry. The department failed to halt the payments to lenders who had exploited loopholes to inflate their eligibility for subsidies on the student loans they issued.

Recent investigations by state attorneys general and Congress have highlighted how the department failed to clamp down on gifts and incentives that lenders offered to universities and their financial aid officers to get more student loans. Under this pressure, the department is now seeking to set new rules.

The subsidy payments that Mr. Oberg uncovered are another corner of the lending system on which the department long failed to act, critics say, letting millions of dollars flow from the public treasury to about a dozen lenders.

( aka, Repug-instigated corporate welfare. and right-wingers bitch about "entitlements"? GMAFB )

The department now says it did not fully understand the extent of the maneuvers

(aka The Gonzo Defense)

the loan companies were making to get the subsidies until last September, when its inspector general investigated and issued a report detailing manipulations carried out by a Nebraska lender, Nelnet. The audit recommended that the department recover $278 million from the lender, but education officials instead reached a settlement allowing Nelnet to keep the money but cutting it off from further subsidies that it claimed it was eligible to receive.

( just fucking WOW! )

Senator Edward M. Kennedy, Democrat of Massachusetts and chairman of the Senate education committee, has asked Ms. Spellings to turn over documents related to the settlement decision. She is likely to come under questioning about the Nelnet settlement on May 10, at a hearing of the House education committee.

Mr. Oberg, now retired, has a master’s degree from the University of Nebraska and a doctorate in political science from the Free University of Berlin. He is a former Navy officer, university professor, and aide to Senator J. James Exon, a Nebraska Democrat, from 1979 to 1984. He was an Education Department liaison to Congress under the Clinton administration.

The subsidy payment issue that came to preoccupy Mr. Oberg grew out of decisions Congress made in the 1980s to ensure that low-cost student loans were available at a time when the economy was souring. Lawmakers guaranteed nonprofit lenders a rate of return of 9.5 percent on student loans that were financed by tax-exempt bonds to protect the companies from spiraling costs.

Congress eliminated much of the subsidy program in 1993 because interest rates had dropped, but at that time retained the 9.5 percent return for existing loans. By 2002, lenders had devised ways to inflate the volume of loans for which they received the 9.5 percent subsidies. Congress closed one loophole in 2004, but lenders found others. Congress further restricted the subsidies in 2006.

In 1997, the Clinton administration proposed legislation to eliminate all references to the subsidies from the Higher Education Act in an effort to rein them in. Mr. Oberg took the legislation to Sally Stroup, who was then serving as senior aide to the Republican chairman of the House education committee.

“Sally told me there was no way that language was coming out,” Mr. Oberg recalled. “She didn’t give a reason — just forget it.” Ms. Stroup, who went on to become an assistant secretary of education in the Bush administration, and who is now back as an aide on Capitol Hill, did not return several phone calls and messages left for comment.

In 2000, Mr. Oberg transferred to the department’s research operation, and two years into the Bush administration, began to review the government filings of Nelnet and other lenders. He found that not only were payments to lenders rising rapidly, but also that the base amounts of the loans lenders were claiming as eligible for the 9.5 percent subsidies were exploding.

“Several big lending agencies were gaming the system,” Mr. Oberg said in a recent interview at his home in Rockville, Md.

He notified the Education Department’s inspector general’s office. He also told his superiors but felt they were brushing him off. So in November 2003, he wrote a memorandum for general distribution throughout the department warning that lender manipulations could cost the government billions unless stopped, and he recommended that the secretary could end the abuse with a letter to lenders clarifying government rules.

That is when his supervisor, Mr. Whitehurst, director of the department’s Institute for Education Sciences, stepped in. Mr. Whitehurst said that he had forwarded Mr. Oberg’s memorandum to appropriate senior officials, whom he declined to identify, but acknowledged that he “wasn’t real happy” because he considered Mr. Oberg’s research to be outside his job description.

“Plus, I didn’t understand the issues,” Mr. Whitehurst said recently. “In retrospect, it looks like he identified an important issue and came up with a reasonable solution. But it was Greek to me at the time — preferential interest rates on bonds? I didn’t know what he was doing, except that he wasn’t supposed to be doing it.”

( Whiteshit "did'nt understand"? Will ignorance matching the willful incompetence the Repugs have polluted the Exec branch with by installing dumbfuck Repug political appointees to oversee pillaging of tax dollars into corp/campaing contributor pockets )

He told Mr. Oberg to stop because he wanted him to be monitoring grants, not lending practices. Officials also rewrote Mr. Oberg’s job description, documents show, barring him from further research into the subsidies. Although Mr. Oberg was a civil servant, the Bush administration may have seen him as a holdover from the Clinton administration.

Mr. Oberg said he decided to continue his research in his free time because, “If you tell some people they can’t do something, they want to do it all the more.”

But when he requested from his own department data on payments to lenders, known in the bureaucracy as the 9.5 percent Special Allowance Payments, Donald Conner, an analyst in the department’s postsecondary division, e-mailed Mr. Oberg saying, "I’m not permitted to give any 9.5 percent SAP information."

Mr. Whitehurst, in an interview, suggested that Mr. Oberg was viewed by some senior officials as an annoyance. “I was told he was like a dog on a bone, agitating on this issue,” Mr. Whitehurst said. Ms. Spellings did not reply to a memorandum Mr. Oberg sent her about waste in the loan program just before his 2005 retirement, Mr. Oberg said.

But Mr. Oberg’s warnings prompted a clamor in Congress and a string of reports by government investigators calling for a stop to the giveaways. Senior department officials disputed or declined to follow the recommendations of all of them.

A 2004 report by the Government Accountability Office urged the department to rewrite its regulations to save billions of dollars in future loan subsidy payments. But Ms. Stroup, who had once worked for one of the lending companies that is now under investigation for the subsidies, argued in response that it would be simpler for Congress to clamp down with new legislation. Mr. Paige repeated that argument in a letter to Mr. Kennedy, who was pressing the department to curb the subsidies.

Then, in 2005, the Education Department’s inspector general recommended that $36 million be recovered from a New Mexico lender. Ms. Spellings overruled the finding that the payments were improper and declined to recover the payments. And in January 2007, after the inspector general recommended that $278 million in overpayments be recovered from Nelnet, the department instead reached a settlement under which Nelnet could keep the money — if it dropped plans to bill the department for another $800 million in subsidies.

( just fucking wow. "quit fucking us over for $800M more, and we'll let you keep the $278M youve already fucked us over for" )

Nelnet was the nation’s most generous corporate donor to the National Republican Congressional Committee in 2006, and its top three executives were the largest individual donors to the committee as well, according to the nonprofit Center for Responsive Politics.

Nelnet was also well connected at the department. Don Bouc, Nelnet’s president through 2004 and president emeritus thereafter, sat on the department’s Advisory Committee on Student Financial Assistance from 2001 through Feb. 1 of this year, even while the department was auditing the company’s subsidies and negotiating the settlement. Mr. Bouc resigned from the committee 11 days after the department announced that it would not seek to recover the $278 million.

Ben Kiser, a Nelnet spokesman, said Mr. Bouc’s service for the committee was unrelated to the audit.

Robert Shireman, a researcher in Berkeley, Calif., who co-authored a private nonprofit group’s 2004 report on the subsidies called “Money for Nothing,” said, “There has been an outrageous lack of interest at the Education Department in doing anything to stop the bleeding.”

Then this January, turning to a measure Mr. Oberg had recommended in 2003, the department issued a “subregulatory guidance” letter cutting off subsidy payments to all lenders except those who prove their eligibility with an audit.

Kristin D. Conklin, a senior adviser at the department, said the department had been unaware, until its inspector general issued its Nelnet audit last September, that lenders were collecting subsidy payments on loans that were clearly ineligible.

That audit documented how Nelnet had transferred loans repeatedly into and out of tax-exempt bonds issued before 1993 to expand the volume of loans eligible for the subsidies. The audit identified so-called first-generation loans, financed from the pre-1993 bonds, and second-generation loans, financed from the proceeds of the first-generation loans, as eligible for the government subsidies. It said later-generation loans were ineligible.

“It’s not like we were sitting on this big problem and didn’t address it,” Ms. Conklin said. “We didn’t know the extent to which these third- and fourth-generation loans were being used. The full scope of this problem first became known to us in September, and we moved seriously to address it in the following months.”

( willful ignornce. Although Oberg rocked the boat and told them, the Repug appointees claimed "they dind't know" )


Ms. Conklin also said the department had previously lacked the power to cut off overpayments using a simple letter. Only intervening legislation passed by Congress made that possible, she said. Today, with Mr. Oberg’s predictions proven accurate, he has become a bit of a celebrity. Mr. Kennedy arranged his testimony before the Senate in February.

“Taxpayers owe a tip of the hat to former Nebraskan Jon Oberg, who blew the whistle on the scheme that allowed companies to grab hundreds of millions in subsidies,” the Lincoln Journal Star wrote in October.

[xrayzebra]

Wonder if any of them ever thought of just paying cash?

boutons, as the halls of liberalism, how come the defenders of
the poor and diversification didn't catch all this hanky-panky of
taking advantage of the down-trodden?

[Aggie Hoopsfan]

I'm trying to figure out what the big deal is. Help me here boutons. You go to school, you either apply through loans where your parents bank or you get them through the school.

I guess they need to investigate parents too, they're obviously biased towards the banks where they do business :rolleyes

[Aggie Hoopsfan]

well when you go into the financial aid office, and they give you a list of 5 or 6 "preferred lenders" and say you're a first-generation college student whose parents don't have scrill and don't have a bank, who do you think you're going to go with? who do you think is going to get you the best deal? i mean the university's Financial Aid office is supposed to be there to help you, right? it's like a professor using his/her friend's textbook (or his/her own, which they do sometimes) even though there's a better cheaper one out there. it's complete bullshit.

I was a first generation college student in my family. I actually shopped around online to find the best deal I could, and that was at my school's suggestion. Yeah, they had preferred lenders, they all are about the same, you just gotta look around.

I'll agree with you on any bullshit you want to call on the textbook business, that shit is a sham.

[boutons_]

Aggie, RIF.

If you don't understand from those 2 articles what has been going on, you're as intentionally ignorant as Puto Gonzo.

[leemajors]

textbooks? :lol the library is a lifesaver

he's not talking about VCC, Harvard on the Guadalupe.

[Aggie Hoopsfan]

Aggie, RIF.

If you don't understand from those 2 articles what has been going on, you're as intentionally ignorant as Puto Gonzo.

Damn, shocking. People are making deals to make money. What the fuck kind of a country are we living in?

We should nationalize everything and make people stand in line for toilet paper.

Da, comrad?

[boutons_]

"People are making deals to make money"

graft and kickbacks are illegal.

shifting recent loans into old status where the get 9.5% govt guarantee is illegal.

Loan companies giving $Ms to the Repugs so the Repugs will let the loan companies corrupt universities and steal 100s of $Ms of govt/taxpayer $$ is corrupt.

You're bitch-slapped again, masochist.

[Aggie Hoopsfan]

"People are making deals to make money"

graft and kickbacks are illegal.

shifting recent loans into old status where the get 9.5% govt guarantee is illegal.

Loan companies giving $Ms to the Repugs so the Repugs will let the loan companies corrupt universities and steal 100s of $Ms of govt/taxpayer $$ is corrupt.

You're bitch-slapped again, masochist.

Hey dick sucker. Who is generally in charge of academic institutions nationwide?

Oh yeah, liberal democrats. Bitch slap that, cunt.

So who's worse? Legislators (of both parties) who look the other way in Congress? Or the liberal university presidents who take the bribes?

And the other thing, where were all your liberal legislators screaming at outrage over this on Capitol Hill? Oh yeah, they were lining up for their bribe money as well :lol

Man you are a stupid fuck.

BTW, the 'masochist' insult is about as fucking retarded as your cut and paste bullshit. I guess I should expect that from a poster that probably gets his ass kicked for his lunch money every day at school.