House adopts crackdown on student loan business

WASHINGTON (Reuters) -- The U.S. House Wednesday overwhelmingly passed a bill cracking down on conflicts of interest in the $85 billion student loan market amid a widening scandal.
Adopted by a 414-3 vote, the bill would require colleges and lenders to abide by new codes of conduct; ban gifts from lenders to college aid officers; require disclosure of college-lender relationships; and protect students from aggressive marketing practices.
Investigations by Congress and New York Attorney General Andrew Cuomo have accused lending institutions of providing pay and perks to college financial aid officers in return for being put on "preferred lender" lists shown to students looking to borrow money for their education.
Allegations have also emerged of questionable stock dealings involving lenders, financial aid officers and an employee of the U.S. Department of Education, which oversees the nation's complex student financial aid system.
"Corrupt practices among lenders, schools, and public officials have undermined our student loan programs," said House Speaker Nancy Pelosi in a statement, calling the bill a needed action to clean up the student loan industry.
America's Student Loan Providers, a group that represents student lenders, backed passage of the bill. It said in a statement that revelations of misconduct "are inexcusable and have deeply embarrassed the student loan community."
Facing the world's highest tuition fees, U.S. university students increasingly borrow money for their education. Typical undergraduates leave school today owing around $20,000.
For many U.S. students and their families, college costs are a worry at this time of year with college admission letters arriving in the mail and aid application deadlines nearing.
Under the bill, "preferred lender" lists would not be banned but would be more tightly regulated, while ensuring students have access to lenders not on the lists, as well.
House Education Committee Chairman George Miller told reporters after the vote that the bill -- known as the Student Loan Sunshine Act -- will help restore student loan ethics.
The California Democrat said he hoped the Senate will move swiftly to adopt a similar bill so a measure can be sent to the White House. If the Senate moves slowly, Miller said, "I would be concerned."
California Rep. Buck McKeon, senior Republican on the House Education Committee, said: "We do need to reaffirm our trust in the system. I believe this bill does just that ... I'm hopeful the other body will pick up this legislation."
Edward Kennedy, chairman of the Senate Education Committee, said there is bipartisan agreement on a Senate package of student loan industry reforms that he expects to include in an upcoming Higher Education Act reauthorization bill.
"These reforms will include many of the measures included in the version of the Sunshine Act I introduced in February, including a ban on lender gifts, reform of 'preferred lender lists,' and disclosures to make ... education loans more transparent," the Massachusetts Democrat said in a statement.
In the House, Texas Democratic Rep. Ruben Hinojosa said, "The daily drumbeat of scandal in the student loan industry cries out for action. With the Sunshine Act, we are taking a critical first step towards restoring public confidence."
Some congressional Democrats want further reforms, including a measure to channel more students into direct government loans and away from federally guaranteed loans.
But this effort faces stiff opposition and threatens the business models of major student lenders such as Sallie Mae , Citigroup, Wells Fargo, Wachovia, Bank of America and JPMorgan Chase.