LAST WEEK I described the dangers of student debt, both discretionary and education related. Considering that over 33 percent of in-state 2007 graduates and 30 percent of their out-of-state counterparts received loans, student loans are a major issue for University students. Last year, a student loan scandal erupted, as the state of New York investigated colleges that improperly endorsed certain lenders over the competition. While Virginia was largely unscathed by this scandal, it must nevertheless remain vigilant. The Virginia Senate recognizes this and should be commended for tackling student loan corruption by unanimously passing S.B. 510, a bill that provides for regulation and punishment of unethical lenders and loan officers.
As described in its bill summary, this measure requires "the State Council for Higher Education to develop policies and procedures for disclosing certain information to students on student lending practices." The bill stems from last year's scandal that, according to The New York Times, implicated financial aid officials in unethical reception of presents, stock awards, consulting fees and vacations from loan institutions hoping to gain larger market share in the $85 billion industry. In exchange for their gifts, loan officers steered trusting students toward certain companies. Many schools named "preferred lenders," that supposedly offered the lowest rates and highest quality of service to students and parents.
According to the Chronicle of Higher Education, by "2002 some lenders had begun paying alumni associations and athletics associations to recommend their consolidation loans." In many cases, the "preferred lenders" and endorsed banks didn't offer lower rates to students.
The scale of this scandal was just as impressive as its seriousness. Multiple lenders, including Wall Street firm JPMorgan Chase, were implicated. The scandal spilled over to three colleges that seemed to have nothing in common -- prestigious Johns Hopkins University, online Capella University and obscure Widener University. New York investigators, who uncovered the scandal, found that officials at each school personally profited from doing business with lender Student Loan Xpress. The Washington Post cited one sickening example, in which "Ellen Fishberg, the Johns Hopkins director of student financial services, received more than $65,000 from the lender since 2002."
Although this scandal has died down since last summer, it still poses legitimate threats to Virginia institutions. Bill S.B. 510 addresses these threats by designating a specific loan regulatory body and providing specific punishments for improper loan practices. The bill safeguards students by requiring the State Council of Higher Education for Virginia (SCHEV) to consult with college governing boards "to develop policies and procedures for disclosure of information by public higher education institutions on their lending practices." This stipulation requires schools to describe why they endorse or recommend certain lenders to students. The SCHEV requirement also mandates that each school must remind students that they can borrow from "any lender of their choosing."
The bill's Chief Patrons are Sen. A. Donald McEachin (D-Richmond) and Sen. J. Chapman Peterson (D-Fairfax). McEachin represents all of Charles City County and parts of Richmond City and Henrico County. Chapman represents part of Fairfax County and all of Fairfax City. The two are wise to designate SCHEV as student loan watchdog. The council has coordinated higher education in the commonwealth since 1956, and currently "makes higher education public policy recommendations to the Governor and General Assembly." As an impartial institution, it is well suited for student loan oversight. Most importantly, S.B. 510 is estimated to cost $5,000 at most. Rarely can so much be done to help constituents at such a small cost.
Significantly, this legislation has teeth. It promises Class 1 misdemeanor charges for any employee or vendor caught illegally promoting one loan provider over the competition. Class 1 misdemeanors carry a maximum sentence of 12 months in jail and will serve as sufficient deterrent to potentially wayward loan officers and lenders.
Students already have to contend with high tuition rates, shrinking federal assistance and large student loan debt burdens. When taking on tens of thousands of dollars in debt, we must be able to trust university loan officers to find the lowest interest rates and best funding strategies for us. The stipulations of S.B. 510 significantly safeguard students. The bill is a progressive and long overdue regulatory overhaul. Yesterday the House Committee on Education reported S.B. 510 with substitute by a vote of 21-0. Now it's up to the full House of Delegates to recognize the importance of safeguarding students and unanimously pass S.B. 510.
James Rogers is a Cavalier Daily associate editor. He can be reached at jrogers@cavalierdaily.com.
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