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Secretary Spellings Defends Agency's Loan Rules

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Secretary Spellings Defends Agency's Loan Rules


Secretary Spellings Defends Agency's Loan Rules

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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Once school's out in New Orleans, parents might be left wondering what to do with their kids. Well, a new announcement today about a new initiative came from Gulf Coast Hurricane Recovery Coordinator Donald Powell and Louisiana Lieutenant Governor Mitch Landrieu. It's designed to keep kids occupied, entertained and off the street.


Two hundred AmeriCorps volunteers will be spending the summer in New Orleans helping out with recreational and educational programs that will benefit some 4,000 children and teenagers. The VISTA Summer of Service, as it's called, is getting federal, state and local funding. The money and resources will go towards enhancing existing after-school and summer programs.

NORRIS: Federal and state investigators have been taking a hard look at the $85-billion student loan industry, questioning lenders about currying favor with the universities by providing gifts, trips, meals and financial incentives in exchange for business.

Last week, the House passed legislation that bars student loan companies from offering such perks. The bill also calls for increased federal oversight, something critics say has been lacking. This morning, I sat down with Secretary of Education Margaret Spellings. She says she's been working to clean up the student loan industry for the last two years, and she says that not all lenders fall within her jurisdiction.

Ms. MARGARET SPELLINGS (Secretary, Department of Education): People need to understand that, particularly, since costs have grown so dramatically, there's been such a demand for true private loans, which look more like regular consumer loans, like a car loan or a home equity loan or other sorts of financing systems, and those are completely outside of the jurisdiction of this department. That - those jurisdictions are with the SEC and the FTC and the FDIC and the Federal Reserve, and that's why I have taken it upon myself to convene the leaders of those organizations so that we can get a more holistic view of enforcement around this issue.

NORRIS: With the growing reliance, though, on private loans - why not push for more oversight in that area? Or at least raise a hand at some point and say, you know - we no longer have control or oversight of these industries and so many of these loans are now private.

Ms. SPELLINGS: Well, that's one of the things that I think we need to look at carefully because there's, you know, a myriad of laws that may or may not be vigorous enough or are on target enough. And, you know, I think anytime you have a lot of jurisdictional oversight and overlap, there's the potentiality for confusion on the part of the institution and possibly some slippage with respect to the borrower.

And I think that's - this is what we call in education, a teachable moment, a chance for us to look again, particularly in light of these changing dynamics of rapidly increasing costs, a lack of transparency and information, and a high level of demand for higher education.

NORRIS: There are a lot of people who, right now, are looking back and saying, you know, I wish I would have done this or I wish I would have looked closer. I'm wondering if you have any regrets or wish that you might have done something else to try to head this off at the pass - sit down with lenders, sit down with schools and say, you know, this doesn't look good. Maybe you ought to rethink how you're doing business here.

Sec. SPELLINGS: Well, I - you know, I am, you know - feel very good about the aggressive role I have taken in pursuing higher education policy. And it's not just this issue. We can't just pick off this one, you know, when someone got a, you know, quail or a lamb chop on the Hudson River and we're springing into action. I mean it's really much more serious and more profound than that.

Is there more we can and should do? The Congress has failed to act on reauthorizing the Higher Education Act six times, and I am bound by the law that they have written. So, I am very hopeful that we will set the record straight. That we will frame where we need improvements and that we will get to work together - the Congress and the administration - to improve this system for our kids. I mean, it's a raging fire in American public policy and we have to fix it.

NORRIS: There is one case in particular regarding a Nebraska lender called Nelnet, which was found to have crossed the line. The department decided not to try to recoup some $278 million in federal subsidy payments, and at the time you had said that the department decided not to try to recoup this money because it might lead to litigation that could cause the federal government three times that much money - up to $900 million.

And after making that decision, I'm wondering if that sends a perverse message to lenders or other companies. Does it send a message that the government is afraid of...

Sec. SPELLINGS: No, clearly not. I mean what it sends a message is, that we're going to follow the law and we're going to enforce the law. Now anyone can second-guess the settlement of a lawsuit, no doubt about it. But I made the decision that the best course of action was to, once and for all and finally, end this practice, and that's what I did.

NORRIS: Secretary Spellings, thank you for your time. Good to talk to you again.

Sec. SPELLINGS: Thank you, Michele.

NORRIS: That was Secretary of Education, Margaret Spellings.

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