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Amid Loan Scandal, Attention Turns to College Affordability Crisis

After widespread reports of questionable practices in the student loan industry, the U.S. Congress — and, particularly, minority lawmakers — took the difficult first steps this week to refocus the debate on how best to reform the financial aid system to help low-income students.

“The crisis of confidence in our student loan programs shines a light on a larger problem,” said U.S. Rep. Ruben Hinojosa, D-Texas, chairman of the House of Representatives’ higher education subcommittee. “We have left low- and middle-income families to fend for themselves when it comes to financing a college education.”

As the House confronted Education Secretary Margaret Spellings about loan practices at a public hearing and passed the first of several bills seeking changes in the loan industry, many policymakers cited the need for comprehensive solutions — a combination of more need-based financial aid plus counseling and consumer protection policies.

Even Spellings, under tough questioning Thursday for the department’s lax oversight of lenders, touched on the theme. When asked why non-subsidized private education loans remain unregulated, she cited the importance of such loans due to the underfunding of grants.

“The Pell Grant has not been able to keep up with the cost of college,” she said, adding that the entire system needs reform.

“We cannot fix this broken enterprise by cherry picking a few narrow issues to address,” she continued. “We must peel back the layers, increase transparency, streamline the entire system and provide more aid for students.”

In the first of what may be a series of higher education bills, the House this week approved the Student Loan Sunshine Act. Under the bill, loan companies no longer may:

  • Offer gifts to financial aid officials
  • Share revenue with colleges and universities that push their loan products
  • Provide their own staff to work in college financial aid offices

“More than ever, our students and families are relying on student loans to help pay for college,” said U.S. Rep. John Conyers, D-Mich., a senior Congressional Black Caucus member. Yet, he said, “We now know that egregious conflicts of interest and corrupt practices among lenders, schools and public officials are undermining the student loan programs.”

Hinojosa said the bill would promote education and consumer protection, since it would inform students about how much they can borrow through subsidized, lower-interest loans. Too often, he said, low-income students are steered to “pricier private loan packages” when they still can borrow more through lower-cost subsidized loans.

In her appearance before the House Committee on Education and Labor, Spellings said a department-ordered task force will recommend additional regulations, including the right for borrowers to choose any lender. Any college with a preferred lender list must include at least three choices and indicate why those lenders are on the preferred list.

But even if the new bill becomes law and new regulations take effect, low-income students will continue to face obstacles without an infusion of federal aid. “We have a crisis in college affordability for our low- and middle-income families,” Hinojosa said. “College costs are rising rapidly, and federal student aid has not kept pace.”

–Charles Dervarics

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