USC's chief of financial aid quits

Los Angeles Times: USC's chief of financial aid quits Page 1 of 2

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From the Los Angeles Times

USC's chief of financial aid quits

Catherine Thomas steps down amid scrutiny of her ownership of a lender's stock. Campus officials say
students weren't hurt.

By Paul Pringle
Times Staff Writer

June 1, 2007

USC's longtime financial aid director is leaving the post in the wake of allegations that she violated
the school's conflict of interest policies by acquiring stock in a lender recommended to students.

Catherine Thomas will retire effective today, nearly two months after she was placed on paid leave
as a result of her dealings with the former parent company of Student Loan Xpress.

Thomas, who held the job since 1990, had become a subject of a New York-based investigation
into whether financial aid officers steered students to lenders in exchange for discounted stock and
other inducements.

New York Atty. Gen. Andrew Cuomo's probe has triggered broader inquiries into the $85-billion
student loan industry by Congress and the U.S. Department of Education.

The investigations are ongoing, as is an internal review by USC of its financial aid operations. A
campus spokesman has said no students were harmed by Thomas' stake in Student Loan Xpress,
which USC has removed from its list of preferred lenders.

Thomas had acquired and sold about $14,000 worth of stock in the parent firm, Educational
Lending Group, according to Cuomo's office. Investigators have said they believe that she and
officials at other schools obtained the shares at a discount.

Reached by phone Thursday, Thomas declined to answer questions about her departure. "Give it a
few days," she said.

In other developments Thursday, the Federal Trade Commission said it has launched an
investigation into allegedly deceptive marketing tactics by student lenders, including two in San
Diego, and Cuomo's office reached loan-related ethics agreements with New York's Columbia
University and a national financial aid association.

Rep. George Miller (D-Martinez) requested the FTC examination after complaints that lenders had
attempted to scare students about looming interest rate increases and used letterheads that
resembled official government stationery.

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Los Angeles Times: USC's chief of financial aid quits Page 2 of 2

Miller cited two examples of such letters from College Debt Corp. and Education Loan Funding.
Representatives of the two firms could not be reached Thursday.

Columbia will adopt a code of conduct for financial aid operations and allow Cuomo's staff to
monitor them, and it will pay more than $1 million into an education fund. The university recently
fired its financial aid director because of his receipt of stock in the Student Loan Xpress firm.

The National Assn. of Student Financial Aid Administrators also agreed to adhere to a more
specific ethics policy, Cuomo's office said.

"It's been a good day," said Cuomo spokesman Jeffrey Lerner. "There's kind of a growing
movement among universities and student lenders to really clean up the financial aid process."

Since the investigations began, the University of California and California State University systems
have ordered reviews of their financial aid policies.

In addition, Cuomo's office has questioned whether borrowers have been improperly directed to a
lender that pays fees to alumni associations, including those for UC Riverside, UC Santa Cruz and
San Jose State.

UC officials said Thursday that the Riverside and Santa Cruz associations would disclose to
members the details of any relationships with lenders.

A San Jose State spokeswoman said she believed its association was considering a similar policy.

[email protected]

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Friday, June 1, 2007

Education Department Is Making 'Minimal' Progress on Student-Lending Abuses,
Inspector General Says

By PAUL BASKEN

Washington

The U.S. Department of Education has made "minimal" progress in dealing with a series of complaints
about fraud and abuse in the nation's $77-billion-a-year system of government-backed student loans, the
department's Office of Inspector General says in a semiannual report to Congress.

The report, which is dated April 30 and was publicly released on Thursday, says a pair of audits in
September 2006 outlined a series of corrective actions that could be taken by the department and its Office
of Federal Student Aid, or FSA.

"To date, FSA and the department have taken only minimal steps to address our recommendations," the
inspector general said.

One of the audits found that the National Education Loan Network, or Nelnet, a for-profit student-loan
provider based in Nebraska, had improperly collected an estimated $278-million by billing loans under an
old reimbursement rate that had allowed lenders a 9.5-percent rate of return.

Education Secretary Margaret Spellings ruled in January that Nelnet and other lenders engaging in similar
manipulations of the expired 9.5-percent reimbursement rate could keep the money they had accumulated
through June 30, 2006, but collect no more (The Chronicle, January 22).

Lawmakers criticized the ruling and called on Ms. Spellings to identify other lenders who benefited from the
practice and disclose how much it had cost taxpayers. At a May 10 hearing of the U.S. House of
Representatives education committee, Ms. Spellings promised to provide those figures.

The amount the government lost to such lenders remains unknown, but Jon H. Oberg, a former Education
Department researcher who helped uncover the losses in the 9.5-percent program, said he believed the
number should be fairly straightforward to calculate. He estimated that it probably totals about $600-million
to $800-million.

That includes a total of $322-million kept by Nelnet, Mr. Oberg said. The $278-million mentioned in the
inspector general's report covers payments only through June 2005, several months before the payments
stopped, he said.

The second-largest recipient of such money is likely to be the Pennsylvania Higher Education Assistance
Agency, which Mr. Oberg estimated had collected $100-million. The inspector general is working on an
audit of the Pennsylvania agency's involvement in the 9.5-percent loan program.

The chairman of the House education committee, Rep. George Miller, Democrat of California, said he was
counting on the U.S. Justice Department to take further action against lenders who misused the
9.5-percent program.

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"The inspector general is rightly frustrated at having its
commitment to oversight and accountability is weak at
A spokeswoman for the education secretary, Katherin
department under Ms. Spellings had been "very proac
Ms. Spellings's decision in January gave "the final wor
said. Lenders now must "bear the burden of proof that

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Group Inc., the original owner of the lender Student Lo

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