FTC begins student loan inquiry

NEW YORK --The Federal Trade Commission has opened an inquiry into complaints of deceptive marketing by student-loan providers, widening the scope of ethics probes into the $85 billion-a-year industry.

The commission is "actively assessing" whether lenders have made deceptive claims, chairwoman Deborah Platt Majoras said in a letter yesterday to US Representative George Miller. The California Democrat had requested the review.

The commission is reviewing complaints against two closely held companies and examining others for potential violations of telemarketing, debt-collection, or other laws, Majoras said. Investigations by Miller, US Senator Edward Kennedy, New York Attorney General Andrew Cuomo, and other officials found college financial-aid officers accepting payments and gifts from lenders the schools recommended to prospective borrowers.

"Some consumers have complained that lenders are using deception or other unlawful acts and practices," Majoras said in the letter, released by Miller's office. "Law enforcement will be a critical part of the FTC's response."

The FTC, which includes a bureau of consumer protection, conducts civil investigations. The commission can issue injunctions to prevent violations or levy fines of as much as $11,000 a day per violation, according to the website of its general counsel.

Separately yesterday , Columbia University agreed with Cuomo to adopt a student-loan code of conduct and pay $1.13 million into a national education fund, 10 days after firing a financial aid director who held stock in a lender recommended to students.

The New York-based university also agreed to financial-aid monitoring procedures that will be overseen by his office, Cuomo said, calling the arrangement the first of its kind in the United States.

Cuomo also said that the National Association of Student Financial Aid Administrators, which represents aid officers at 3,000 schools, agreed to adopt a more specific ethics code after his office rejected an earlier version.

Miller heads the House Education and Labor Committee, which also is investigating student-loan practices. In a May 2 letter, he asked Majoras to examine lenders and cited two cases in which San Diego-based companies urged borrowers in marketing letters to consolidate their education loans.

The firms, closely held College Debt Corp. and Education Loan Funding, told borrowers they were in danger of paying higher interest rates if they failed to consolidate loans. Miller said the campaigns were designed to look like government communications and were intended to scare and profit from students.

A telephone call yesterday to officials at College Debt Corp. wasn't immediately returned. Calls to Education Loan Funding reached either a disconnected number or weren't returned.

Also yesterday , the University of Southern California said its financial-aid director, Catherine C. Thomas, would retire, becoming the fourth US higher-education official to lose a job during investigations of conflicts of interest with education lenders.