Education Dept. Criticized as Lax in Policing Loans

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Source: NYTimes

The federal Department of Education, after months of criticism for lax oversight of the student loan program, still has no system to detect and uncover misconduct by lenders and protect student borrowers, a new government report said yesterday.

The report, by the Government Accountability Office and released by Congressional Democrats, found that the department had “no oversight tools” to see whether lenders were giving improper incentives to colleges to steer student borrowers their way, and, that since 1989, the department had offered lenders no “comprehensive guidance” on what incentives might be forbidden. In 20 years, the report found, the department has tried to punish only two lenders for violating government rules.

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In testimony before Congress in May, Ms. Spellings pointed to the removal of federal student aid programs in 2005 from the accountability office’s “high-risk list” for fraud, waste and abuse of as a sign that the Education Department was resolving “financial integrity and management issues.” But the G.A.O. report, requested by members of Congress last year, undermines that earlier conclusion.

The new report puts a harsh light on the internal workings of the Education Department. For example, if the department suspects misconduct by a lender, it has no established procedure on how to respond, the report says. The department may send a company a letter asking it to “cease the activity” that may be questionable. But it does not monitor whether those letters work, the report found.

Read more: http://www.nytimes.com/2007/08/02/education/02loans.html?_r=1&hp&oref=slogin