After a nationwide investigation of some of the nation's top colleges and student loan lenders exposed questionable business practices and potential conflicts of interest, Congress approved a new law late Thursday prohibiting schools and financial aid officers from accepting payment or gifts from lenders and requiring loan providers to inform borrowers about the terms of a loan, interest rates and federal aid, among other measures.
"This historic legislation allows the rest of the nation to follow New York State's lead in cracking down on the deceptive student loan industry," said New York Attorney General Andrew Cuomo.
The Higher Education Opportunity Act of 2008 codifies a Code of Conduct developed by Cuomo, who led the nationwide investigation last year. The code has now been adopted by more than a dozen lenders and 26 schools and helped model the Student Loan Accountability, Transparency, and Enforcement Act of 2007, which passed the New York State legislature last year.
Cuomo said his investigation discovered student lenders who "were all too intent to ensnare students in loan packages that left them drowning in unnecessarily high debt."
If President Bush signs the bill into law, financial aid officers at colleges and universities will not be allowed to assign first-time borrowers to particular lenders or refuse loans from lenders that students have chosen. Lenders will also not be allowed to use a school's name, emblem, mascot or logo to make it look like a school has endorsed a lender through marketing tactics.
Supporters of the bill say it will also make higher education more affordable for students by requiring textbook publishers to sell books individually, instead of in bundles that may come with more materials than students need, and by increasing the Federal Pell Grant maximum from $4,800 to $6,000 in 2009 and to $8,000 in 2014. And Pell grants will be available all year-round.
"Non-traditional and community college students have improved options for funding their educations," said Sen. Michael Enzi (R-WY). "This bill recognizes that not every student chooses to attend a four-year university."
The National Association of Student Financial Aid Administrators released a letter of support it sent to the House and Senate education leaders this week, saying, "Passage before so many schools commence their academic year signals a commitment to students that the nation is willing to invest in their academic success. If America hopes to maintain its position as a world leader, we cannot let these students fall through the cracks."
Edie Irons, communications director for the Project on Student Debt, said last year's investigation uncovered some unexpected findings.
"We knew that there were problems, especially around preferred lender lists and how colleges recommended lenders and how they chose which lenders to recommend," Irons said. "But as far as the more extreme excesses, such as kickbacks in the form of stock options, they were pretty surprising to us."
Irons said students face major financial decisions regarding borrowing and that this bill helps clarify the terms of student loans, especially those that are private. But she said the bill also leaves out some measures that the Project on Student Debt was advocating for, such as the certification of private loans, which would require a lender to notify a school when a student took out a loan.