The scandal in student loans

April 10, 2007

There's something especially disturbing about the disclosure of cozy relations between university loan officers and at least one of the companies that makes money by lending to students. Loan officers steer students to particular lenders. They shouldn't be accepting money from these companies, under any circumstances.

The Johns Hopkins University yesterday suspended the director of student financial services at the Homewood campus, Ellen Frishberg, after learning that she had received more than $65,000 from Student Loan Xpress Inc. over a three-year period. Hopkins is one of several universities to take such action against a loan officer since an investigation by the New York attorney general, Andrew Cuomo, began to gather steam. The federal official who oversees the program, Matteo Fontana, has also been put on leave by the Department of Education.

The parent company of Student Loan Xpress, CIT Group Inc., reports that the payments to Ms. Frishberg were for consulting fees. There has been no suggestion that she received the sort of stock deal that the company entered into with Mr. Fontana and officials at Columbia University, the University of Texas and the University of Southern California. But any financial link between a university official and a private student loan provider is so obviously unacceptable that Hopkins really had no choice but to place her on leave until the investigation is complete.

The private student loan business has been booming; outstanding loans total $17.3 billion. Student Loan Xpress says it has the eighth-largest share of the market, and that happened thanks to its assiduous wooing of colleges and universities, which create lists of "preferred lenders" for their students. The company is reportedly on the lists of 1,200 schools.

Yesterday, CIT suspended the management of its lending subsidiary, which is a welcome step. Chancellor William E. Kirwan of the University System of Maryland has directed its various schools to gather information about their student loan programs; the University of Maryland Baltimore campus, for one, has listed Student Loan Xpress as a preferred lender.

There may be more to come. Mr. Cuomo's office is looking into the activities of other lenders as well. The U.S. rightly prides itself on its system of higher learning, and the appearance of financial corruption in public and private institutions is deeply troubling. What's also disturbing is that these revelations are coming from a state investigation, and that federal officials - far from policing the system - may have been part of the problem.

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