Student Loan Database Used for Marketing
Students with loans typically receive a barrage of solicitations for loan consolidations and other services in their mailboxes, and they often wonder how the advertisers got their names and addresses. Recent reports suggest they may have come from the U.S. Education Department itself.
As first reported in the Washington Post, lenders have been improperly using the department's National Student Loan Data System to gain access to student loan information, including names and loan balances. Congress authorized the creation of the database in 1986 to keep track of the way loans were being awarded and repaid. Lenders are prohibited from using it to gather information for advertising.
"They're using it for things that they're not supposed to be using it for," says Stephen Burd, a senior research fellow at the New America Foundation.
This latest development comes amid a series of allegations of improper behavior in the student loan industry. Last week, an investigation by New York Attorney General Andrew Cuomo revealed close relationships between schools and the lending companies they encourage their students to use. Cuomo uncovered evidence that university financial aid executives accepted money and other perks from the lenders. Meanwhile, Matteo Fontana, an Education Department official who helped to oversee the student loan database, was suspended for owning stock in a student loan company.
The idea that lenders would use the database to drum up business outraged student advocates. "To me, this is a striking example of loan programs being administered in the interest of lenders," says Luke Swarthout of U.S. PIRG, a public interest advocacy group.
"It's an issue of what the consumer expects when they sign up for a federal loan. They do not expect that their information is being handed over to private companies for marketing," says Robert Shireman, executive director of the Berkeley, Calif.-based nonprofit Project on Student Debt.
Sen. Ted Kennedy, a Massachusetts Democrat who is chairman of the Senate's Health, Education, Labor, and Pensions Committee, has sent a letter to Education Secretary Margaret Spellings urging her to stop private lenders from using the database while the department figures out how to stop lenders from improperly using the information.
This is not the first time concerns have been raised about the security of the loan database. In 2005, the Education Department's inspector general reported that the database was not in compliance with department policy on password duration and did not require weekly audit log reviews. The report also found that contract employees without appropriate security clearances had access to the system and that people who had not used the system in 12 months retained active passwords, including over 1,000 users classified as lenders. The Office of Federal Student Aid, which oversees the database, generally agreed with the findings and agreed to update its security measures.
The Education Department says it continuously monitors the system and has revoked over 52,000 user IDs since 2003. It issued a letter in April 2005 that reminded users of the database rules. Lenders are allowed to view only the accounts of students with whom they have relationships.