NAICU Washington Update

Secretary Spellings Gets Chilly Reception at House Hearing

May 15, 2007

A hearing to examine the Department of Education's oversight of federal student loan programs and the Reading First program on May 10 quickly turned combative as House Education and Labor Committee Chair George Miller (D-Calif.) outlined a litany of "troubling revelations about unethical practices in the student loan industry," and conflicts of interest and "potential criminal misconduct by Reading First officials." Throughout the questioning, Miller continued to call Department of Education Secretary Margaret Spellings to account for the Department's lack of oversight of these programs.

In Spellings' defense, Ranking Minority Member Howard "Buck" McKeon (D-Calif.) focused on the progress the department has made since the late 1990s, when the department failed a series of internal audits. While he cautioned committee members not to harm the programs through "overzealous investigations" and "endless, partisan witch hunts," he expressed support for the "Student Loan Sunshine Act," H.R. 890. (See separate article.)

Although the hearing was also to look at the Reading First program, student loan issues clearly were foremost in the minds of the committee members, and attracted a large press contingent. In responding to questions from Democrats, Spellings repeatedly defended the Department's past actions, arguing that a high legal hurdle (quid pro quo) limited the department's ability to go after lender inducements to colleges. She did not, however, defend the loan program itself, saying the financial aid system was "redundant and broken," and fraught with cost, access, and transparency problems. At one point, a frustrated Miller acknowledged that legal action might not have been possible, but asked why the secretary didn't at least sound an alert about what was going on. Spellings responded that the law and regulations needed to be changed before there could be enforcement.

Calling herself one of the most active secretaries of education, Spellings said she appointed an internal task force following the recent, failed negotiated rulemaking panel on federal loans. She reported that just the day before the hearing the task force had sent her recommendations that will be incorporated into an expedited regulatory process. Spellings announced that the "Notice of Proposed Rulemaking" would be published by the end of May. It is expected to contain requirements for choice, competition, and transparency in the loan industry - including a requirement for institutions to explain why they have put specific lenders on their preferred lender list.

Spellings managed to inject broader administration goals into her answers to member questions. For example, in responding to Rep. Michael Castle's (R-Del.) question about the level of special allowance payments paid banks and increasing college costs, she again stated the need for a better financial aid system, more transparency, an IPEDS data base, and for colleges to provide "value-added" information and details on graduates' employment. She also noted the Department is midway in a process to produce a new conceptual design for the federal financial aid system.

At the conclusion of the hearing, Rep. Tim Bishop (D-N.Y.) accused the Department of using the negotiated rulemaking process to achieve its own goals on transfer of credit, dismantling the Perkins Loan Program, and applying uniform standards to all college students. He questioned why Spellings would go ahead with these ideas when Congress was considering these very issues in reauthorization of the Higher Education Act. Somewhat defiantly, Spellings replied that Congress can trump what is done in negotiated rulemaking, but argued that she felt it important to go forward in the direction recommended by the commission she established. She emphasized that the process will continue in the absence of statute, and until such time as "Congress imposes its will."

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