Loan Database Shutdown Could Cause Delays
Students could face delays in getting their loans as a result of the Education Department's decision to block access to the central loan database, according to lenders that rely on the database. Meanwhile, student advocates lauded the decision as a much-needed response to misuse of the system.
The Education Department blocked access to the database Tuesday after reports that lenders were using it for marketing purposes, which is prohibited. Lenders are allowed access to data only for students with whom they already have relationships. The database was created by Congress in 1986 to keep track of which students have which loans.
"[Lenders] have to check to see if a student is eligible before they can make a loan to them," says Harrison Wadsworth, special counsel to the Consumer Bankers Association, which represents the banks that participate in federal student loan programs. The shutdown, he says, will cause lenders to move more slowly and in some cases hold off action if there are questions that need to be checked against the database.
Loan consolidations will also be affected, he says, because students sometimes forget to include certain loans in their consolidation and lenders use the database to make sure they are all included. "It just kind of grinds things to a halt," Wadsworth says. Even if the database shutdown lasts only another week, it will slow things down during this busy period, he adds.
Sallie Mae, the largest student loan company, referred questions about the database to the National Council of Higher Education Loan Programs, which represents schools, lenders, and collection agencies. Brett Lief, president of the council, said the database shutdown could result in eligible students getting rejection notices because lenders rely on the database to confirm eligibility and correct errors in other data.
"It's happening at a bad time. ... If a student doesn't think they'll get aid at their first choice because of an error in the record, the fact that it's closed down could really hurt a number of students," says Lief.
An Education Department spokeswoman said she was unable to say when database access would be restored. In a letter to Sen. Ted Kennedy, chairman of the Senate Health, Education, Labor, and Pensions Committee, Education Department Secretary Margaret Spellings said that during the blockage, the department will review the database usage and consider updating its guidance to users. "Recognizing that students and families depend on vital financial aid dollars to support their education, the department will work to minimize any disruption in service," Spellings wrote. Students' access to their own loan information is not affected.
Kennedy had requested the shutdown of the database Sunday, after the inappropriate usage was first reported in the Washington Post. Spellings said the department had already taken action against 261 instances of suspicious activity on the database but gave no details.
"It's a great idea to limit the access these lenders have to this database because it shouldn't be used to solicit students to take out additional loans," says Rebecca Thompson, legislative director for the U.S. Student Association.
Thompson says she often hears from students who are contacted by loan companies, sometimes with confusing solicitations, and they wonder how the companies obtained their personal information. "[The shutdown] is one way to make sure lenders aren't accessing students' information to solicit them," she says.
Luke Swarthout, higher education advocate for the U.S. Public Interest Research Group, says that even if the shutdown causes some delays, it will help students in the long run by protecting the financial aid system from corruption. "A timely review [of database usage] is clearly necessary," he says.
The move to shut down the database was described as too little, too late by Rep. George Miller, chairman of the House Education and Labor Committee. In a conference call with reporters, he said he intends to investigate the abuses of the database system and whether borrowers' privacy rights were violated.
"The student loan database is there for the benefit of the student loan program. While it's a rich environment for other uses, neither the students nor the families signed up for those purposes," said Miller.