House Passes Legislation to Overhaul Ethical Standards in Student-Loan Industry

May 09, 2007

The U.S. House of Representatives easily passed a bill today that aims to put an end to unethical practices in the student-loan industry.

The bill (HR 890), dubbed the Student Loan Sunshine Act, represents a compromise between Democrats and Republicans on the House education committee. It would require colleges and lenders to adopt codes of conduct governing their interactions with each other and would place strict limits on the use of preferred-lender lists. The vote today was 414 to 3.

Introduced in February, the Sunshine Act underwent significant revisions in the days leading up to the vote. While the original would have required college officials to disclose their conflicts of interest, the revised bill would seek to eliminate such conflicts altogether, in part by barring financial-aid officers from serving on lenders’ advisory boards or accepting staff support from lenders. It also would outlaw several practices that have been uncovered by parallel investigations in Congress and the New York attorney general’s office — including revenue-sharing agreements, which give colleges a portion of the profits on loans taken out by their students, and opportunity loans, which are pools of private loan money that lenders give to colleges to secure spots on their preferred-lender lists.

In a news release, the New York attorney general, Andrew M. Cuomo, praised the House for passing the bill, saying it had “taken the next step in closing the book on corruption in the student-loan industry.” New York’s Legislature passed similar legislation on Monday.

After today’s vote, two major lending groups — the Consumer Bankers Association and American’s Student Loan Providers — issued news releases supporting the bill. “Everyone needs to know there are no conflicts of interest,” said Joe Belew, president of the bankers association.