Lawmakers in the House recently proposed legislation designed to stop unethical practices that private student loan lenders sometimes undertake to gain preferred lender status with universities.

Introduced in early February, the legislation would ban gifts from lenders to college employees and would require these lenders to disclose the terms of their arrangements with colleges and universities. Many colleges and universities maintain a list of lenders to whom they steer students in need of tuition financing. Some private lenders have tried to curry favor with colleges for preferred lender' status by offering gifts, including overseas trips, software or operation of financial aid offices, according to a statement from Rep. George Miller (D-Calif.), chairman of the House Committee on Education and Labor, and one of the legislation's sponsors.

Specifically, the legislation would ban lenders from offering gifts worth more than $10 to college employees; require a full explanation of why an institution designated a lender as preferred'; and encourage borrowers to maximize their borrowing through the government's loan programs before accepting alternative loans and direct-to-consumer loans with higher interest rates.

"Students and parents deserve to have all relevant information about a lender they are borrowing significant amounts of money from," Ruben Hinjosa (D-Texas), said. "This legislation will help ensure that lenders and schools are putting students and families first."

The Senate also introduced its own proposal on the same issue, in legislation sponsored by Sen. Edward Kennedy (D-Mass.) and Dick Durbin (D-Ill.)

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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