A federal report has found the Department of Education’s oversight of a program providing student loans through private lenders is not doing enough to monitor agreements between lenders and colleges or universities. The report was prompted by negative media coverage of lender misconduct under the program and released in August.

The Government Accountability Office charged with investigating the department’s methods found that it “has no oversight tools in place designed to proactively detect potential instances of lenders providing improper inducements” and that the department has used its authority only twice in the last 20 years “to enforce prohibitions on improper inducements or limitations on borrower choice.”

“There were tons of loopholes in this policy,” said Gregory Kienzl, visiting assistant professor for the Forum for the Future of Public Education in the College of Education. “It made it possible for the private lending companies to really exploit financial aid programs.”

According to the Department of Education’s Federal Student Aid Web site, students who attend a Federal Family Education Loan Program school make a selection from their school’s preferred lender list. When students take out loans under this program, they receive funds from that private lender. The government encourages private lenders to participate in the program through monetary incentives called subsidies.

Dan Mann, director of student financial aid, said the University is not directly affected by these findings because it is a member of the Federal Direct Loan Program.

The program allows students to take out educational loans directly from the government, according to the Federal Student Aid Web site. About 35 percent of students at the University take out federal loans.

However, students attending Federal Direct Loan schools like the University who did not qualify for federal loans may need to take out a private alternative loan from lenders. About 2,000 University students took out private loans in 2005-2006, according to the Office of Student Financial Aid. Mann said problems often arise with these lenders because they rely heavily on direct marketing.

Mann said current legislation over private loans falls under the banking subdivisions of the government rather than the educational subdivisions.

“In my personal opinion, I would like to see the Department of Education be more involved in the oversight of alternative loans, but right now the department does not feel it has the authority,” he said.

Mann said he advises students that do have to take out private alternative loans to first take a look at the federal loans the government can offer them by completing a Free Application For Federal Student Aid. He said most students who do not get grants are usually eligible for a federal Stafford Loan.

Mann also said that if a student needs to take out a private loan, he should carefully review the terms and interest rates associated with the loan and limit borrowing.

“I want to make sure students really take out the lowest cost loans possible and that they are not borrowing money they don’t need or should not be getting,” said Mann.