U.S. Education Department officer stock questioned

WASHINGTON (Reuters) - The U.S. Department of Education said on Friday an official in its student financial aid office has been placed on paid leave while his stock ownership in a student loan company is being reviewed.

Matteo Fontana has been general manager of the agency's Financial Partners Services since April 2005 and a career employee at Federal Student Aid since November 2002, the department said in a statement.

The student loan industry is coming under increasing scrutiny for alleged abuses and conflicts of interest.

According to a September 2003 U.S. regulatory document, Fontana held 10,500 shares of Education Lending Group Inc. (ELG), the parent company of Student Loan Xpress Inc.

The stock offering prospectus, on file with the U.S. Securities and Exchange Commission, indicated that Fontana planned to sell all 10,500 shares of common stock, which was then valued at about $100,000.

ELG said Student Loan Xpress was formed to market to financial aid offices of schools with the purpose of being placed on their lists of preferred student loan providers.

At that time the subsidiary was on the preferred list of more than 380 schools and expected that figure to grow beyond 450 by the end of 2003, according to the SEC document.

"The department has placed Matteo Fontana, a career employee at Federal Student Aid since November 2002, on administrative leave," department spokeswoman Katherine McLane said in a statement.

"As previously noted, this matter has been referred to the department's Office of Inspector General," she said.

In 2005 ELG was acquired by CIT Group Inc., a consumer and commercial finance company.

CIT said on Thursday it was looking into a series of stock grants made by its student lending unit to financial aid officers at three major U.S. universities. CIT said the transactions occurred prior to CIT's acquisition of ELG.

New York State Attorney General Mario Cuomo is also investigating ELG's stock grants.

Financial aid officials from Columbia University, the University of Southern California and the University of Texas owned at least 1,500 shares of Education Lending Group, as disclosed in the September 2003 SEC document.

Education Secretary Margaret Spellings has asked Lawrence Burt, associate vice president and director of student financial aid at the University of Texas at Austin, to step down from the Advisory Committee on Student Financial Assistance, McLane said.

The committee is an independent body created to provide advice and counsel to Congress and the secretary of education.

California Democrat George Miller, chairman of the House Education and Labor Committee, in late March sought information from five major lenders about their relationships with college financial aid offices.

Those firms are industry leader Sallie Mae, as well as Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup.