NY's Cuomo: Education Dept "asleep at switch"

Reuters
NY's Cuomo: Education Dept "asleep at switch"
By Kevin Drawbaugh

WASHINGTON (Reuters) - New York State Attorney General Andrew Cuomo took a widening campaign to clean up the student loan business to Washington on Wednesday, urging Congress to reform student financial aid and accusing the Bush administration of being "asleep at the switch."

The son of former Gov. Mario Cuomo told lawmakers that criminal charges may result from investigations he is pursuing into questionable ties between banks that lend money to college students and individual university financial aid officers.

Cuomo and fellow Democrats in Congress, along with other state attorneys general, are racing ahead of federal regulators in an examination of links between lenders and colleges, which critics say pose conflicts of interest or worse.

Investigators have said some college aid officers took payments and perks from lenders in exchange for placing the companies on "preferred lender" lists shown to students.

"There is a possibility of criminal charges in some of the cases we are investigating," said Cuomo, 49, at a House Education and Labor Committee hearing.

Cuomo criticized the Bush administration, saying Secretary of Education Margaret Spellings "has defaulted on her obligation" to oversee the $85 billion student loan industry.

"The failure of the Department of Education to pass adequate regulations is disappointing and irresponsible ... the (department) has been asleep at the switch." he said.

Cuomo was secretary of housing and urban development under President Bill Clinton. He became New York's top cop late last year and is moving quickly to carry on the crusading style of his predecessor, Eliot Spitzer, now the state's governor.

SPELLINGS RESPONDS

Secretary Spellings said in a statement that she shares Cuomo's concerns about lender practices, but she said his remarks were ill-informed. "The U.S. Department of Education takes its role as steward of federal financial aid very seriously," she said.

She added that the department has taken steps to tighten oversight. Earlier this week, Spellings created an internal task force to work on new student loan regulations.

But California Democratic Rep. George Miller said the Education Department should be doing more. He called on Spellings last week to undertake "emergency reforms."

Both Miller and California Rep. Howard McKeon, the education committee's top Republican, have introduced legislation to overhaul the student loan system. Kennedy is working on a package of reforms in the Senate.

Spellings has agreed to testify before the House education committee, which Miller chairs, on May 10.

Separately, Massachusetts Democratic Sen. Edward Kennedy on Wednesday asked Spellings for files and public financial disclosure reports for 27 Education Department employees.

The chairman of the Senate education committee said in a statement that "information has recently come to light which raises serious questions about the impartiality of political appointees working at the Department of Education."

Earlier this month, a manager in the department's financial aid office was put on leave pending a review of his ownership of stock in Education Lending Group Inc., former parent of Student Loan Xpress, now a unit of CIT Group.

As Cuomo's inquiry has progressed, lenders -- including Citigroup, Sallie Mae, JPMorgan Chase & Co., and Bank of America Corp. -- have agreed to abide by a code of conduct recommended by the attorney general. It bans school-lender financial ties, "preferred lender" list payments, and lender gifts to college employees.

In a related matter on Wednesday, the New York State Senate passed a bill barring lenders from making gifts to universities in exchange for privileged treatment. The bill has yet to be approved by the state assembly.

(Additional reporting by Christian Plumb in New York)