A Tale of Student Loan Corruption

Over at Higher Ed Watch, Stephen Burd has an informative writeup on the case of Matteo Fontana and what it says about government oversight of the student loan industry:

The news that Matteo Fontana, a former high-ranking official at the U.S. Department of Education, has pleaded guilty to charges that he lied to the government about his ownership of stock in a student loan company he was in charge of overseeing provides a timely reminder of why the student loan industry is in such hot water now.

During the Bush administration, the loan industry went virtually unregulated. Top officials at the Education Department did not just look the other way while widespread abuses occurred in the Federal Family Education Loan (FFEL) and private student loan programs. They actually helped lenders skirt federal laws and regulations so the companies could maximize their profits — often at the expense of students and taxpayers.

The government’s case against Fontana provides the most glaring example of the type of conflicts of interest that were rife within a Department heavily staffed by former student loan industry officials. As Higher Ed Watch first revealed in April 2007, Fontana, the general manager of the Financial Partners Division of the agency’s Federal Student Aid office, held 10,500 cut-rate insider shares of stock, worth over $100,000 in the parent company of Student Loan Xpress for nearly a year after he joined the Education Department in the fall of 2002. At the time, we did not know whether Fontana had fully disclosed his stock holdings to his superiors at the agency.

According to federal prosecutors, Fontana repeatedly lied about his stock holdings on financial disclosure forms — falsely claiming, for instance, that he had sold his Student Loan Xpress stock in December 2002. In fact, he didn’t sell his stock — including an additional 1,400 shares he purchased while at the Department — until 2004 and 2005, for a total of around $219,000.

Lots and lots of corruption. If you’d like to read about even more, make sure to check out Burd’s article in this issue of the Washington Monthly.

Jesse Singal

Jesse Singal is a former opinion writer for The Boston Globe and former web editor of the Washington Monthly. He is currently a master's student at Princeton's Woodrow Wilson School of Public and International Policy. Follow him on Twitter at @jessesingal.