Congress enacts sweeping changes in financial aid

By: Alex Still

Posted: 10/9/08

The combined efforts of New York Attorney General Andrew Cuomo's office and the United States Congress have brought sweeping change to the complicated world of student loans over the past year, creating a set of reforms that intimately involves Hopkins students and employees.

Since several scandals involving financial aid officers received national attention, including a perceived conflict of interest centering around Hopkins's former Director of Student Financial Services Ellen Frishberg in spring of last year, members of Congress have attempted to make the college loan process more affordable, accessible and simple.

"[Hopkins] was not considered to be more of a player than some of the other schools [that were investigated]," Delicia Reynolds, the legislative counsel to Congressman John Sarbanes (D-MD), who is a member of the House Education and Labor Committee and one of the bill's co-sponsors, said.

But, she continued, "as one of the higher-profile schools on the list, [Hopkins] definitely was carefully considered by both the attorney general and Congress in the crafting of this bill."

The most important recent development was the passing of House's Higher Education Opportunity and Affordability Act (HEOA) of 2008. Passed in August, the bill combines a number of old and new plans targeting both the rising cost of college and the problems surrounding student loans.

The Private Student Loan Transparency and Improvement Act of 2008 (Article X in the larger bill), specifically deals with the regulation of student loans and addresses the problems highlighted by the questionable actions of Frishberg here and by financial aid officers at other colleges and universities.

The bill's reforms deal strictly with private loans that are not subsidized or guaranteed by the federal government.

"Tightening of regulations surrounding these loans will be seen as a welcome move by most," Vincent Amoroso, who replaced Frishberg as Director of Student Financial services, said.

This part of the legislation expressly prohibits University employees from accepting gifts from lending institutions and imposes a number of measures designed to make the lending process as honest and fair as possible.

Preferred lender lists, while not explicitly forbidden by the new legislation, must now meet rigorous guidelines to ensure that they are constructed with student's best interests in mind and without any ulterior motives. Schools with preferred lender lists must now fully disclose the basis for these preferences based on pre-set criteria under the Transparency Act.

Immediately after details surrounding Frishberg's conflicts of interest with Hopkins own list of preferred lenders surfaced, Hopkins abolished this list entirely.

"One important change that did occur as a result was the elimination of any type of preferred status with the University for lenders who provided student loans. This also included any type of preferred lender list that may have been maintained in the past," Amoroso said.

In addition, the bill includes measures such as 30-day "grace period" after a loan has been approved during which a student can review all relevant information and a three day period immediately following the signing of the loan where a student can back out with no penalty.

Amoroso stressed that these were extra safeguards to ensure that student can make the best, most informed decision.

"[This law] giving students up to 30 days after approval of a loan to accept its terms and conditions and up to three days to back out after signing loan agreements will help to provide consumer protection for student borrowers," he said.

"Since private loans are usually the most expensive to borrow in terms of fees and interest rates, these provisions will help students have a little?time to decide if they made a good choice."

Reynolds explained that the legislation focuses directly on student lending practices rather than on institutions.

"Private lenders were utilizing practices that were not to student's best interests. There were various instances of cases of certain individuals and lenders seeking out personal gain over their professional duties," she said.

Reynolds emphasized that relationships between lending companies and schools had become conflicts of interest that potentially endangered students' ability to get a fair deal for their college funding.

She stressed that this legislation was "emergency action" to prevent further conflicts of interest, and that Attorney General Cuomo had been one of the leaders in persuading Congress to take initiative.

Prompted by New York residents who were concerned about the student loan practices in their state, Cuomo instigated a nation-wide investigation into loan practices, which Hopkins was quickly pulled in to.

Reynolds explained that students believed the preferred lenders lists were compiled because the lenders offered the best packages and rates available, but that this was in fact not necessarily true.

"They were on the list for other reasons, and this is why Congress got involved. There were these conflicts of interest existing within the system, and many smaller lenders - which could have offered better rates - were being shut out."

According to William Conley, the dean of Enrollment and Academic Services, Hopkins's decision to cease use of such a list has made it harder for the University to help students make a good decision about college financing.

"These lists had a history of providing good rates for our students and made it much easier to find a lender. Without a lender list, it's very difficult to help advise students about financing - there is so much out there, so where do you start?"

He reiterated that Dr. Frischberg's actions, which centered on her position on an advisory board for the private lending company Student Loan Xpress, had caused "no material harm to students," but that this appearance of a conflict of interest - she had received tens of thousands of dollars worth of goods and services from a company at the top of the lending list - had led to the attorney general's inquiry and her subsequent resignation.

"Student Loan Xpress was at the top of the list perhaps because of the relationship with Dr. Frishberg, but its rates were as competitive or more so than most of the other lenders out there - but that one of our employees was in a conflict of interest," Conley said.

"And in such an instance, there doesn't need to be any actual damage, but only the appearance of a conflict of interest."

Conley believes that the legislation has been successful in giving universities standards to follow.

"From my perspective, the attorney general's investigation and efforts by various members of Congress have combined in a powerful way in this legislation," he said. He emphasized that the University is following this new legislation precisely.

Reynolds confirmed Conley's assertions that the "Hopkins's case was reflective of an individual bad practice and not an institutional policy."

She went on to say that Hopkins was one of the schools Attorney General Cuomo was drawn to in his investigation, but "was not considered to be more of a player [in these oversights] than any other school."

Besides providing all of these safeguards against future misconduct, Conley and the Office of Student Financial Services see within the guidelines of the HEOA an opportunity to replace the old preferred lender list with more effective measures of helping students finance their education at Hopkins and to make the daunting process of acquiring and approving student loans better for everyone involved.

Other changes are also in the works, such as the development of a student loan search engine, a novel method in which the university hopes to continue to effectively advise students about financing within the boundaries of the legislation.

Sarbanes, Amoroso and Conley were all in agreement that the process of financing student's education, while needing the reforms brought out in the legislation, still must work in a way that makes it easy for students to acquire the necessary information.