April 5, 2007

WASHINGTON -- Rep. Tom Petri (R-WI) expressed serious concern over the latest reports of abuse in the student lending industry. On April 4, the New America Foundation's Higher Ed Watch reported that it had found that several financial aid administrators had "significant personal investments in a publicly traded, for-profit student loan company," Student Loan Xpress. It had also discovered a potential similar conflict of interest with an official who oversaw lenders participating in the Federal Family Education Loan (FFEL) program at the Department of Education.

The investigation found that the financial aid administrators from the University of Texas - Austin, University of Southern California, and Columbia University accepted tens of thousands of dollars in stock options from the company as compensation for serving on its advisory board. At Columbia, Student Loan Xpress became the primary lender to students, making $14 million in loans to students annually. These loans are highly profitable for lenders and come at significant cost to taxpayers - a near 14% subsidy in fiscal year 2006.

"This investigation further brings to light the unscrupulous behavior of certain lenders in our federal student loan program," Petri said. "For years I have spoken out against the perverse incentives in the Federal Family Education Loan (FFEL) program for lenders to waste taxpayer dollars and manipulate student loan choice. This is another unfortunate example of the need for comprehensive student loan reform."

Petri added, "It is increasingly evident that there is a need for strong congressional oversight over this broken federal loan program. I will be asking my colleagues on the Education and Labor Committee to join me in requesting that the Department of Education Inspector General investigate these developments. I will also be looking into the merits of imposing ethics guidelines for financial aid administrators if they are not capable of doing it themselves."

Rep. Petri has been an active advocate for reform of federal student loans. In March 2007, he joined with nine other bipartisan colleagues in a letter to Education Secretary Margaret Spellings criticizing the Department of Education's decision to allow student lender Nelnet to retain $278 million in taxpayer funds which the Department's Inspector General said it received fraudulently. He has also sponsored the Student Aid Reward (STAR) Act to inject more competition and reform into federal student loan programs to, as he put it, "better serve students and to save taxpayers money."