Getting rich at the public trough

Al Lord is a rich man. As head of SLM Corp., he made $255 million in five years. He's now building his own private golf course in a Washington, D.C., suburb. And to think he did it off a federal program that's supposed to help low-income students borrow money. Ahhhhh. The Bush years.

We again shield our eyes at a furtive coupling of private business and public money. The federal student-loan program offers a virtual primer on how to get obscenely rich in today's Washington:

First, let private companies scoop the profits, while making taxpayers assume all the risks. Under the program, the government guarantees against bad loans and unwanted changes in interest rates.

Next, let the industry staff the government with its own people. During the Bush era, at least eight top officials in the Department of Education came from — or left for — the student-loan biz.

Look away as the lenders' former (or future) employees undermine the competing government program. We speak of the federal direct-loan program, which, as its name suggest, lends money directly to the students, leaving out the private middleman.

Finally, don't fret if the program's guard dogs fail to bark at illegal activity that benefits their former (or future) bosses. The companies were apparently paying college officials to send student borrowers their way, which is not allowed.

Loan Xpress allegedly turned a financial aid officer at Johns Hopkins University into a paid consultant. Other directors of financial aid — at the University of Texas in Austin, the University of Southern California and Columbia University — were given stock in the company.

In 2004, SLM offered Indiana University a $3 million check for "opportunity loans" if it left the direct-loan program. IU did leave but insists that the $3 million wasn't the reason.

The Education Department's inspector general asked a high official in the department to stop the abuses. She, a loan-company alumna, did not heed the request.

Life in the student-loan business has gotten a bit bumpy since President Bush called for cutting its subsidies. His budget report rudely noted that for every $100 in private student loans, taxpayers had to cough up $13.81. For every $100 in the direct loans, their bill was $3.85.

How can we explain the president's declining generosity? Let's start with the gaping budget hole that even he can't ignore much longer. The Democrat-controlled House certainly helped pave his way by already voting to cut the subsidies. And forgive this cynicism, but with the changeover in Congress, the student-loan business is giving less money to Republicans.

Meanwhile, the swirling student-loan scandal is finally penetrating the public's brain. Barmak Nassarian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers, summarizes how the private student-loan program shortchanges the students:

"The basic design of the system allows lenders to siphon off much of the federal subsidies, leaving the borrowers with higher rates than should be the case. The students are not seeing the full effects of that subsidy."

By the way, the White House may not have totally forsaken Al Lord. Several days before Bush's budget proposal was revealed, Lord sold $18 million in the company's stock.

Felicitous timing? Perhaps. But suspicious minds at the Securities and Exchange Commission are now investigating Lord for possible insider trading. And Democrats have requested correspondence between the SLM and the White House that might point to "inappropriate communications."

The private lenders had assumed that as long as George Bush was in the White House, they were covered. Now they're not, and Democrats are bold. You know what they say about all good things.

Providence Journal columnist Froma Harrop's column appears regularly on editorial pages of The Times. Her e-mail address is fharrop@projo.com