ALEX COHEN, host:
From NPR News, it's DAY TO DAY.
Student loan officers are trying to clean up their act. This following revelations that many of them took gifts and kickbacks from lenders. New York Attorney General Andrew Cuomo has announced a new code of conduct that Columbia University and the National Association of Student Financial Aid Administrators have agreed to.
Joining us now to talk about it is John Dimsdale from MARKETPLACE. John, refresh our memories. Why is does there need to be a code of conduct?
JOHN DIMSDALE: Well, in the last few months there have been a series of scandals where it turned out that college financial aid officers were steering student borrowers toward particular lenders in return for gifts and kickbacks, including meals and trips. Some college employees were even given stocks in the lending institution that got the business.
There were also revenue-sharing agreements between universities and lenders where the school got money back for sending students to a particular lender. Nine colleges so far have agreed to reimburse student borrowers about $3 million.
COHEN: So what have these college administrators agreed to? What's this code of conduct all about?
DIMSDALE: Well, the idea is to keep business dealings between schools and loan companies at arm's length. Remember, these are government-subsidized loans. Lenders can no longer participate in annual school conferences where they used to sponsor lavish dinners and social activities for these financial aid officers.
Schools can no longer get kickbacks on the business they generate for the banks, and college loan officers can't own stock in the lenders that handle student loans in their schools. All the violations of these codes have increased the cost of student loans. And John Oberg, a former researcher at the Department of Education, says Congress, which is in the process of renewing the Higher Education Act, should crack down.
Mr. JOHN OBERG (Former Department of Education Researcher): Students and families right now are placed at a tremendous disadvantage to the institutions and to the lenders in terms of information. And Congress now has the opportunity to right that balance.
COHEN: John, speaking of the Department of Education, I understand there were some developments yesterday in another case of student loan fraud?
DIMSDALE: Yeah. That's right. It came to light last fall that the department allowed a for-profit student lender to charge higher interest rates than the law allowed, and that generated $278 million in improper profits for the lender. Congress and the department's inspector general have been trying to get the department to collect the ill-gotten gains and return the money to borrowers.
The watchdogs also want to know whether there are any other lenders that were allowed to charge the higher interest rate. The Education Department's inspector general, who looked into this case, issued another report to Congress just yesterday, complaining that the department has made only, quote, "minimal progress" in correcting the problems.
COHEN: Thanks so much, John. John Dimsdale of Public Radio's daily business show MARKETPLACE. It's produced by American Public Media.