Friday, April 06, 2007

The Student Loan Scandal Broadens

The New York Times is reporting in Federal Official in Student Loans Held Loan Stock by Jonathan D. Glater and Karen W. Arenson that numerous University officials realized windfall profits on student loan stock speculation.
A senior official at the federal Education Department sold more than $100,000 in shares in a student loan company even as he was helping oversee lenders in the federal student loan program.

The official, Matteo Fontana, now general manager in a unit of the Office of Federal Student Aid, was identified yesterday from government documents as a stakeholder in the parent company of Student Loan Xpress who sold shares in 2003.

His involvement with the company emerged a day after a widening investigation into the student loan industry revealed that three senior financial aid officials at Columbia University, the University of Texas at Austin and the University of Southern California had also sold shares at the same time.

The stock sales raise questions of conflicts of interest on the part of university officials charged with giving students advice on financial aid and loans and a government official who helped oversee the industry.

The Education Department said late yesterday that Secretary Margaret Spellings had just been briefed on Mr. Fontana and that the department was taking the matter “very seriously.”

“We are providing the department’s inspector general all relevant documents regarding this matter,” Samara Yudof, a spokeswoman, said in a statement. Officials declined to answer questions about the stock transaction.

The government documents, filings with the Securities and Exchange Commission, show that Mr. Fontana sold 10,500 shares in the company in 2003, when they were valued at around $10 a share. He came to the department in 2002 and at the time of the sale was in a slightly more junior position than now, overseeing lenders in the student loan program.

Mr. Fontana did not return calls, and it was not clear what he had originally paid for his shares. At least two of the three university financial aid directors originally paid about $1 a share.

Student Loan Xpress is currently owned by the financial services company CIT Group. C. Curtis Ritter, a spokesman for CIT, declined to answer questions about Mr. Fontana’s dealings with the company.

CIT Group Inc. also has a top university official on its board: John R. Ryan, the chancellor of the State University of New York, which has 64 campuses and more than 400,000 students.

In a telephone interview yesterday, Chancellor Ryan said he believed strongly that there was no conflict between his positions as SUNY’s chancellor and as a CIT director, a post that paid him nearly $150,000 in cash, stock and stock options. He earns $340,000 from SUNY.

As the Education Department responded to questions about Mr. Fontana’s stock ownership, the University of Texas and the University of Southern California followed Columbia’s lead and suspended their financial aid directors pending the outcome of internal investigations into the officials’ relationship with Student Loan Xpress. Columbia also removed the loan company from its spot on the university’s preferred lending list.

All three universities had given Student Loan Xpress a spot on the lists. Students generally rely on the lists for seeking a loan rather than shopping for the best terms.

Mr. Fontana’s participation in the stock sale, which was first reported by the New America Foundation, a Washington policy institute that has focused on student loan issues, caught the attention of lawmakers already looking into the student loan industry.

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