House Committee on Education and Labor
U.S. House of Representatives

WASHINGTON, D.C. – At a hearing of the U.S. House Education and Labor Committee, Rep. Howard P. “Buck” McKeon (R-CA), the panel’s Senior Republican, and Rep. Ric Keller (R-FL), the Higher Education, Lifelong Learning, and Competitiveness Subcommittee’s Ranking Republican, today highlighted key reforms in GOP-led legislation to restore students’ trust in the nation’s financial aid system. 

Earlier this week, McKeon and Keller introduced the Financial Aid Accountability & Transparency Act (H.R. 1994) – a bill that far exceeds reform recommendations offered earlier this year by congressional Democrats.  Most notably:

• The McKeon-Keller bill requires universities to establish financial aid codes of conduct; the congressional Democrat legislation does not;
• The McKeon-Keller bill bans the practice of revenue sharing between private loan lenders and universities; the congressional Democrat bill does not;
• The McKeon-Keller bill explicitly allows an institution to negotiate lower interest rates or fees on loans for students and parents; the congressional Democrat bill does not; and
• The McKeon-Keller bill requires lenders and colleges to disclose more information about preferred lender lists and students’ financial aid rights to students and parents; the congressional Democrat bill simply requires more reporting to the U.S. Department of Education.

“No one would argue with the fact that students’ trust in our financial aid system has been shaken,” said McKeon.  “If Congress must step in, it should be for a very straightforward reason: to ensure this system continues to serve the needs of the students who depend on it for a chance at a college education.  This isn’t about us versus the lenders or us versus the financial aid officers.  This is about the millions of young men and women who expect our student aid system to be there for them when they need it.”

“I believe we will see a great deal of bipartisan cooperation on this issue in the coming weeks and months,” Keller noted.  “The strong reforms Congressman McKeon and I have introduced go even further those offered by congressional Democrats, and I believe our bill provides Congress a great starting point in our effort to restore trust in our nation’s financial aid system.”

Testifying at today’s hearing, New York State Attorney General Andrew Cuomo detailed for the panel a number of problems uncovered by his office’s ongoing investigation into the nation’s financial aid system.  Among these, Cuomo cited:

• Revenue Sharing – Cuomo and others have expressed concerns about a practice through which a lender pays an institution of higher education a percentage of the principal of each loan taken out by a borrower at the institution, thereby leaving open the potential for a conflict of interest.  The practice already is illegal for federal loans.  The McKeon-Keller bill bans the practice with regard to private loans; the congressional Democrat legislation does not.
• Improper Relationships between Lenders and Financial Aid Officers – Cuomo raised concerns about potential conflicts of interest between financial aid administrators and lenders, some of whom may offer gifts, payments, or other financial benefits, including the opportunity to purchase stock in their company.  Cuomo recommended that Congress ask universities establish codes of conduct to limit these practices.  The McKeon-Keller bill requires codes of conduct; the congressional Democrat legislation does not.
• Preferred Lenders – Cuomo and others have raised concerns about the practice through which some institutions have chosen not to inform their student and parent borrowers about the criteria used to formulate the lists of recommended or preferred lenders.  Under both the McKeon-Keller and congressional Democrat bills, each institution’s preferred lender list must include at least three non-affiliated lenders.  Moreover, the institution must make clear to students that they are free to borrow from any lender, not just those on the preferred lender list.

“Despite some of the sensationalized press reports that have followed these investigations, we should not lose sight of the fact that the federal financial aid system must work for students and colleges alike,” concluded McKeon.  “We must be careful not to overreach, as Congress does all too often, but we do need to restore trust in the system.  The proposal Congressman Keller and I have introduced sets us on a clear path to do just that.”

For more information about the Financial Aid Accountability & Transparency Act, click here.

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