Kennedy Calls on Secretary Spellings to Enforce New Restrictions on Student Loan Program

Today, Senator Edward M. Kennedy sent the below letter to Secretary of Education Margaret Spellings to enforce newly-enacted restrictions on the student loan program to protect students and parents against unscrupulous bank tactics.

In February, Congress enacted a moratorium on a program which allowed schools to act as lenders to their students. The moratorium was enacted as a result of several lenders using the program to provide inappropriate kickbacks to schools in order to entice them to use their services. In addition to prohibiting new schools from entering the program, the law put new restrictions on the schools already in the program, designed to ensure that no one loan program has an unfair competitive advantage which could result in fewer options for students, and to ensure that students benefit directly from any proceeds from the program by requiring that schools use those proceeds for need-based student aid.

Since enactment of the law, some financial institutions have advised schools that they can evade the new restrictions through use of a financial arrangement known as an “eligible lender trustee.” In a letter sent today, Senator Kennedy urged Secretary Spellings to enforce the new law and preserve the integrity of the student aid programs by ensuring that no schools or lenders attempt to use loopholes to circumvent the restrictions on the program. Senator Kennedy noted in the letter that the Department of Education has in the past issued a policy that use of such arrangements to evade the law would not be tolerated.

Click here to read the letter

–Tristan Takos