Congressional probe of student loans widens

By Kevin Drawbaugh

WASHINGTON (Reuters) - Congressional investigators probing the $85 billion student loan market pushed into new areas on Thursday by raising concerns about collection tactics and seeking an inquiry into possible conflicts of interest inside the U.S. Education Department.

Edward Kennedy, chairman of the Senate education committee, wrote to the heads of two major student loan firms expressing concerns about allegedly abusive loan collection tactics.

"I am concerned that several private lenders may be engaging in harsh and inappropriate tactics with regard to borrowers whose payments are overdue ... tactics that are prohibited by federal law and regulations," Kennedy wrote in a letter to Tim Fitzpatrick, chief executive officer of Sallie Mae, the nation's largest student lender.

Senate investigators have obtained information indicating lenders may have told a borrower's spouse that the borrower would go to jail if he did not pay, which is "a blatantly false assertion," said Kennedy, a Massachusetts Democrat.

Investigators are also looking into whether lenders have refused to negotiate with borrowers on payment deferment, called borrowers on the job after being told to stop, harassed borrowers' neighbors, family and co-workers and used profane language to intimidate borrowers.

Kennedy asked Fitzpatrick to provide information about Sallie Mae's collection practices under the federally guaranteed student loan system.

Sallie Mae spokesman Tom Joyce said, "It is a shame that Senator Kennedy's staff is continuing to investigate through press releases ... The media received this letter before we did."

He said Sallie Mae is proud of helping college graduates avoid loan defaults and keep healthy credit ratings through its debt counseling efforts. He said the company will cooperate with Kennedy's request for information.

EDUCATION DEPARTMENT INQUIRY

Also known as SLM Corp., Sallie Mae has been swept up in an expanding inquiry by state and congressional officials, which has led to allegations of misconduct and conflicts of interest across the student loan industry.

Kennedy also wrote a letter highlighting his concerns about collection practices to Michael Dunlap, chief executive of Nelnet Inc., another student loan group.

Separately, the chairman of the House of Representatives education committee on Thursday asked for an internal inquiry at the Education Department into possible conflicts of interest among department employees, lenders and others.

California Democrat George Miller made his request in a letter to department Inspector General John Higgins.

Kennedy asked Secretary of Education Margaret Spellings on Wednesday to hand over to his office the personnel files and financial disclosure reports for 27 Education Department employees, including Chief of Staff James Manning.

Earlier this month, a manager in the department's financial aid office was put on leave pending a review of his ownership of stock in Education Lending Group Inc., former parent of Student Loan Xpress, now a unit of CIT Group Inc..