Spellings Faces Student Loan Questions

By NANCY ZUCKERBROD

WASHINGTON – Education Secretary Margaret Spellings says she’s prepared to defend her agency from criticism that it failed to address conflicts of interest in the student loan industry and in a reading program for young children.

"Not only are we not asleep at the switch, but we are very much at the helm and managing our business," Spellings said in an Associated Press interview Wednesday, a day before she was to testify before a House committee.

Spellings was referring to a recent comment by New York Attorney General Andrew Cuomo, who said the department was "asleep at the switch" when it came to overseeing the student loan industry.

Cuomo has led an investigation into the $85 billion industry that has turned up evidence that some colleges received a percentage of loan proceeds from lenders given preferred status by the schools – a practice Cuomo calls "kickbacks." Cuomo also said some college loan officers received gifts from lenders to encourage them to steer borrowers their way.

On Wednesday, the House overwhelmingly passed a bipartisan bill that would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies.

Spellings said she has asked an Education Department task force to come up with recommendations for new regulations to better protect against conflicts of interest between schools or school officials and lenders.

The proposed regulations will include a requirement of at least three lenders on any school’s preferred-lender list, together with an explanation of how and why they were chosen. The rules also will spell out what is allowed and what is prohibited with regard to inducements from lenders to schools, Spellings said.

In addition to facing questioning about the student loan industry, Spellings is expected to be asked by lawmakers Thursday about a No Child Left Behind reading program, Reading First, that has been criticized for conflicts of interest and mismanagement.