Republicans Urge Inquiry Into Management of Federal Student-Loan Program

November 05, 2012

[Updated (11/6/2012, 1:39 p.m.) with comment from the Education Department.]

Seven Republicans in Congress called on Monday for an investigation into the Obama administration's management of the federal direct-loan program, citing borrower complaints about how their loans were being serviced.

In a letter to the Government Accountability Office, Republican leaders of the Congressional education committees asked the watchdog agency to prepare a report on how the Department of Education was administering the direct-loan program, overseeing loan servicers, and communicating with borrowers.

"We have received numerous troubling complaints from borrowers whose financial information and payments were lost by the department, who were put into forbearance without being told, and whose loans were moved to a new servicer without notice," the letter says.

The direct-lending program has drastically expanded since the Obama administration and Congressional Democrats ended the bank-based lending program, in 2010.

Financial-aid professionals and advocates for students have raised similar complaints to those listed in the Republicans' letter, including some citing confusion from a sudden increase in the number of companies that now service federal loans.

Rep. John Kline, a Minnesota Republican who is chairman of the House Education and the Workforce Committee, said in a written statement that "the sheer volume of complaints" was "extremely disconcerting."

"With the federal government now responsible for all student lending, we have a responsibility to conduct strong oversight of the direct-doan program to ensure it is working for borrowers and taxpayers," Mr. Kline said.

Key Issue in Presidential Campaign

Democrats have praised the Obama administration for moving to direct loans and eliminating from the federal student-aid system what they call the middlemen of banks and private lenders.

"The nation's student-loan program should be held to a high standard and be working in the best interest of students," said Tiffany Edwards, a spokeswoman for Democrats on the Education and the Workforce Committee. When banks were involved in the federal aid system, "student interests were not always protected," she added.

The Department of Education also defended the overhaul of the federal aid system that led to the expansion of direct lending as beneficial for college students.

"We look forward to continued efforts to strengthen federal student-aid programs so that they are effective, efficient, and reliable for students," said Justin Hamilton, a spokesman for the department. "And we're committed to working with Congress to ensure that the direct-lending program remains one of America's best investments."

The proper role of the federal government and of the private sector in providing student loans has been a key higher-education issue during this year's presidential campaign.

President Obama has touted the end of the bank-based lending system as one of his administration's chief accomplishments in making college more affordable, in part because some of the savings from the abolition of that system were redirected to expand Pell Grants.

The Republican nominee, Mitt Romney, for his part, has pledged to restore the role of private banks in the federal student-loan system, though he has not specified what such a system would entail.