Also see below:     
Nation's Largest Student-Loan Provider Settles in Widening Probe    [

    Education Department Oversight Questioned
    By Nancy Zuckerbrod
    The Associated Press

    Friday 13 April 2007

    Washington - An Education Department official placed on leave over a potential conflict of interest in his management of the government's student loan program filed disclosure forms that raise questions about the department's oversight of its own employees.

    The forms, released by the department late Thursday, show the official, Matteo Fontana, listed ownership in 2002 of stock in two companies that manage student loans: Direct III Marketing Inc. and Education Lending Group. In fact, the companies are the same; Direct III Marketing changed its name to Education Lending Group at about that time.

    Fontana valued the stock in each in the range of $1,000 to $15,000. Department rules generally allow employees to work on matters affecting companies they own stock in so long as the amount does not exceed $15,000.

    His disclosure forms state that Fontana sold all his stock in the company in December 2002. But a separate disclosure the company filed with the Securities and Exchange Commission nine months later lists him as offering 10,500 shares of Education Lending Group for sale. His disclosure form for that year makes no mention of ownership of such stock.

    Fontana's disclosure for 2004 shows that on July 7 of that year, he sold common stock in a company listed only as EDLG worth $100,000 to $250,000, investing a like amount in a vacation home. EDLG is an abbreviation for Education Lending Group Inc.

    Michael Dannenberg, director of education policy at the New America Foundation, a think tank that disclosed Fontana's SEC filing last week, said the financial disclosure forms released Thursday reveal lax oversight by the department.

    "It appears that the Department of Education's financial disclosure requirements are general and that there's not a careful watch for potential conflicts of interest," he said.

    Education Department spokeswoman Katherine McLane said the ethics office within the department depends on employees to complete their forms accurately and honestly.

    "The onus is on the person reporting their assets to make complete and candid disclosures," McLane said. "The ethics office is not an auditing body."

    She declined to comment on Fontana's filings, saying the matter was under investigation by the department.

    But she said Spellings has ordered that all department financial disclosures filed this year be reviewed by at least two lawyers.

    A telephone call to Fontana's home late Thursday went unanswered.

    Sen. Edward Kennedy, D-Mass, chairman of the Senate Education Committee, has asked for an SEC investigation of the transfer of stock from a company official to Fontana and loan officers at three schools.

    A "memorandum of gift" shows the official gave 7,000 shares of Direct III Marketing to Fontana in December 2001.

    Kennedy said his own investigation revealed that the official apparently acquired the stock at a discount and sold it to the others at a discount.

    On Thursday, Kennedy said Fontana's disclosure forms "raise grave concerns about the effectiveness and impartiality of the ethics process at the department." He added: "The forms show that department officials were aware that Mr. Fontana held a significant financial interest in a company that he was charged with overseeing. Any American can tell you that this is dead wrong."

    The student lending industry is already under scrutiny by New York Attorney General Andrew Cuomo, who is investigating allegations of possible kickbacks to school officials for steering students to certain lenders. Cuomo's investigators say they have found numerous arrangements that benefited schools and lenders at the expense of students.

 

---

    Go to Original

    Nation's Largest Student-Loan Provider Settles in Widening Probe
    The Associated Press

    Wednesday 11 April 2007

    New York - The nation's largest student loan provider will stop offering perks like trips to exotic locations to college employees as part of a settlement announced Wednesday in a widening probe of the student loan industry.

    SLM Corp., commonly known as Sallie Mae, also agreed to pay $2 million into a fund to educate students and parents about the financial aid industry, and it will adopt a code of conduct created by New York Attorney General Andrew Cuomo, who is heading the probe.

    Cuomo said the expanding investigation of the $85 billion student loan industry has found numerous arrangements that benefited schools and lenders at the expense of students. Investigators say lenders have provided all-expense-paid trips to exotic locations for college financial aid officers who then directed students to the lenders.

    "Our position is very simple," Cuomo said. "Loan decisions should be made in the best interest of the students, and not the best interest of the school."

    Sallie Mae CEO Tim Fitzpatrick said in a statement Wednesday, "We are please that Attorney General Cuomo has recognized Sallie Mae's leadership in the student loan industry and our ethical market practices with students and schools."

    Investigators found that many colleges have established "preferred lender" lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have "exclusive" preferred lender agreements with the companies.

    "There is a spectrum of what we consider to be deceptive and illegal practices, from financial incentives that go back to the schools to financial incentives to financial aid officers, to perks to financial aid officers, to employees of lenders being stationed at schools," Cuomo said at his Manhattan office.

    The newly established code of conduct prohibits revenue sharing between lenders and schools, mandates disclosure of relationships between colleges and lenders, sets restrictions on how lenders are chosen for school "preferred lender" lists, and bans gifts or trips to university employees from lenders.

    Sallie Mae is the second lender to agree to the code, which is aimed at making the loan process more transparent.

    Reston, Va.-based Sallie Mae, which serves almost 10 million borrowers and has relationships with over 5,600 schools, also agreed to stop running call centers or providing other staffing for college financial aid offices and stop paying financial aid officers for serving on advisory boards.

    Citigroup Inc.'s Citibank, which does business at about 3,000 schools, last week agreed to donate $2 million to the same fund as part of a settlement with the attorney general's office.

    So far, six schools - the University of Pennsylvania, New York University, Syracuse University, Fordham University, Long Island University and St. John's University - have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing agreements, Cuomo said.

    Those schools, along with all 29 four-year State University of New York campuses and St. Lawrence University, also agreed to abide by the code of conduct.

    Within the past week, six financial aid officers at various schools and a federal Department of Education official were placed on leave after Cuomo's office said they received stock, consulting fees or other compensation from Student Loan Xpress. The company was acquired by CIT Group Inc. in 2005 when it bought Education Lending Group Inc.

    On Monday, CIT suspended the top three executives at Student Loan Xpress amid its own investigation into the unit's business practices.

    Sen. Edward Kennedy, D-Mass., said Wednesday he has asked the Securities and Exchange Commission to open an investigation into the student loan scandal.

    Specifically, Kennedy, who chairs the Senate education committee, asked the SEC to look into the transfer of stock from the current president of Student Loan Express, Fabrizio Balestri, to loan officers at three schools and one senior official at the U.S. Department of Education.

    In a letter sent to the SEC on Tuesday night, Kennedy said his own investigation revealed that Balestri apparently acquired the stock through a private placement of stock at a discount and then sold it to the others at a discount. The sale of private placement stock could be considered a securities violation, depending on when the sale took place.

    An SEC spokesman declined to comment and referred all questions to Kennedy's office.

    A spokesman for CIT Group did not return requests for comment on Kennedy's letter.