Video: Student loan scandal heads to Capitol Hill

By Lisa Myers Senior investigative correspondent
NBC News
updated 5/10/2007 7:33:31 PM ET 2007-05-10T23:33:31

On a Manhattan cruise ship, a major New York bank spent $74,000 wining and dining student-loan officials from more than 200 colleges.

Documents also show the bank, JPMorgan Chase, paid five college student-loan officers to work for the bank while they still held their jobs at the colleges.

It's all part of a growing scandal, in which lenders gave colleges and top officials money and perks — sometimes based on how many students signed up for their loans.

"Big banks, big lenders made big money at the expense of students who were trying to afford a college education," says New York Attorney General Andrew Cuomo.

At New York's Columbia University, the head of financial aid was suspended after allegedly netting $100,000 on stock in a loan company recommended to students.

"Columbia's responsibility is to the students, getting them the lowest rate possible, not enriching their particular administration officials," says Raphael Graybill, a Columbia student.

In internal bank documents obtained by NBC News, students are referred to as "the target."

At some universities, when students looking for affordable loans called financial aid offices, they unknowingly spoke with people actually working for loan companies.

Today, Education Secretary Margaret Spellings was grilled on why her department didn't crack down on lenders.

"At no time did anybody in the department think about picking up the phone and telling people, 'You've got to stop this,'" Rep. George Miller, D-Calif., said during hearings.

"The hurdle is very high for me to establish a violation," Spellings said. "I must prove a quid pro quo."

Spellings says her department is not equipped to monitor loan activities at 6,000 colleges. JPMorgan Chase and other lenders have now agreed to stop these practices, and some schools have agreed to a new code of conduct.

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