Katie Paul News Editor

The student loan controversy went federal on Tuesday, April 24, when Secretary of Education Margaret Spellings announced the formation of a task force that will examine “key lender issues” amidst the recent onslaught of allegations, multimillion-dollar settlements, and—this week, for the first time—a lawsuit.

The Office of New York State Attorney General Andrew Cuomo said on Thursday, April 19 that it would commence its first legal action against a school, announcing its intent to sue Drexel University for its refusal to settle in Cuomo’s ongoing investigation into the questionable relationships between loan companies and college financial aid officials.

“This investigation is a two front battle: lenders and schools. We have proceeded against lenders and now we are proceeding against schools,” said Cuomo. “This office has been clear to schools: settle or we will commence litigation. Either way we will get justice for students.”

On the national level, the U.S. Department of Education blocked lender access to the National Student Loan Data System (NSLDS) on April 17, two days after the Washington Post reported that lenders were improperly scanning the database for confidential information from over 60 million students, in violation of federal rules.

Spellings’ internal task force will include representatives from the Department’s Office of Post Secondary Education, Federal Student Aid and Office of the General Counsel, as well as representatives from the Office of Inspector General who will participate in an advisory role. The task force will focus on key issues such as preferred lender lists, prohibited inducements and the NSLDS, and is expected to produce final proposals for new regulations by Nov. 1, 2007.

Cuomo’s office has been revealing a steady stream of “kickbacks” offered to college officials by lenders each week since he began cautioning colleges in March about potential “conflicts of interest” in their practices. According to Cuomo, the arrangements benefited schools and lenders at the expense of students, as schools would steer their students toward particular lenders based on the benefits that the lenders offered to the schools rather than those they offered to students.

“Across the country, momentum is building behind our investigation into the student lending industry,” Cuomo said in a statement posted on his Web site. “The Code of Conduct is being adopted nationally as the paradigm for best practices in the industry.”

This Monday, April 23, three more colleges—DeVry University, Career Education Corporation, and Washington University—joined the fray in the first multi-state settlements of Cuomo’s ongoing nationwide investigation. The Attorneys General of Illinois and Missouri were also involved in negotiating the settlements.

By now, a total of 18 schools have signed Cuomo’s “Code of Conduct” and pledged to change their practices, thereby agreeing to uphold specified ethical standards of practice for the $85 billion per year student loan business. Eight of those schools have additionally agreed to reimburse students over $3 million, reflecting the money they inappropriately received from lenders.

Three lending companies—Citibank, Sallie Mae, and Education Finance Partners—have also settled with Cuomo out of court; they agreed to contribute $6.5 million to a consumer education fund being created by Cuomo’s office to educate high school students and their families about the college loan process.

Both Citibank and Sallie Mae are on Vassar’s preferred lender list, although Director of Financial Aid Michael Fraher said in an interview on April 5 that Vassar has never engaged in arrangements like those under investigation. In fact, he noted, he has never even received such offers, probably because of Vassar’s small size.

The schools have generally agreed to settlements even while they maintain the innocence of their practices. CEC spokesmen said in a statement published on its Web site, for example, that they “dispute” Cuomo’s “concerns that these contributions create a conflict of interest.”

Cuomo, however, shows no signs of letting up. “This is like peeling an onion,” he told the Associated Press on April 10. “It seems to be getting worse the more we uncover. It’s more widespread than we originally thought...We have demonstrated this is not just the exception. This is the rule.”