Washington, D.C- Congressman Dale E. Kildee (D-MI) announced the results of a critical study today, which revealed a lack of oversight by the U.S. Department of Education on Federal student loan programs.  The General Accountability Office today released a report requested by Congressmen Kildee and Chris Van Hollen (D-MD) detailing the lack of consistency and enforcement by the Department on institutions of higher education which operate as lenders to students, commonly referred to as "school as lenders." 

"GAO has uncovered a lack of oversight by the Department of Education.  The Department seems to know virtually nothing about how these institutions are operating their programs, and whether taxpayer funds are being used properly," said Kildee. “I am absolutely appalled that Department of Education believes that we should not require the use of revenue generated by the school as lender program for student aid.  This revenue should be used to support need-based student financial aid so that we can make college more affordable and accessible for all students.”

The GAO report released on January 24, 2005 found that the Department of Education failed to collect required compliance audits from 10 out of 29 school lenders dating back to 2002.  Furthermore, GAO reported that the Department of Education had not used its authority to conduct any program reviews of schools acting as lenders until as recently as 2004.  The GAO concluded that the Department of Education is virtually unaware of how these institutions are operating their loan programs and have failed to ensure the absence of fraud, waste and abuse.  Congressmen Kildee and Van Hollen wrote Education Secretary Margaret Spellings today to express their concerns about the “School as Lender” program.

Under the Higher Education Act, institutions of higher education are permitted to operate as lenders, primarily to graduate students, under certain circumstances.  If institutions operate as lenders, they must comply with the protections and requirements pertaining to lenders under the Higher Education Act.  In order to offer loans, these institutions have to invest some, but not all profits the loans they offer into grants for needy college students.  In the past few years, some school lender institutions have expanded their profit making abilities by selling the loans they make for a premium.

During the 109^th Congress, Kildee and Van Hollen will introduce legislation that will focus on ensuring that all, not some, profits by school lenders are invested in grant aid and that any grant aid from these profits is in addition to, and not instead of other forms of aid to college students.