Privacy Digest

U.S. Limits Access to Student Loan Database - New York Times: "The Education Department last night cut off outside access to a government database that contains the personal financial information of millions of student aid applicants.

The department acted on concerns that loan companies or other marketers were improperly obtaining private information on potential borrowers.

The shutdown, announced by Education Secretary Margaret Spellings, is its strongest response to a broadening student loan scandal that has already implicated loan companies and caused several universities to put their financial aid administrators on leave and review their dealings with lenders.

In a six-page letter to Senator Edward M. Kennedy, chairman of the education committee, Ms. Spellings offered a staunch defense of the department's practices and its oversight of the student loan industry.

The letter disclosed that since 2003, the department had revoked 261 user IDs that grant access to the database, known as the National Student Loan Data System. The database was used, among other things, to help determine eligibility for financial aid. Of the revoked IDs, 246 belonged to student loan companies, holders of loans, guaranty agencies and loan servicers, and 15 to schools.

Ms. Spellings said that monitoring the database had shown 'a significant increase in usage by lenders, loan holders, services and guaranty agencies' and that the uptick 'was a matter of concern to us.'

'I hold the department and the thousands of civil service professionals who administer these programs to the highest ethical standards,' Ms. Spellings said to Mr. Kennedy, Democrat of Massachusetts.

The shutdown of access to the database, described as temporary, came a few weeks after the disclosure that a department official involved in oversight of access to the database had sold at least $100,000 of stock in a student loan company. That employee, Matteo Fontana, was put on paid leave; filings released by the department showed that he had disclosed his shareholdings.

The question of improper searches of the database has been a longstanding one. Mr. Fontana, the general manager in the Education Department office that oversees federal student loan programs, warned in an April 2005 letter to loan companies, university financial aid administrators and others with access to the database that the access 'is made available only for the general purpose of assisting with determining the eligibility of an applicant for federal student aid and in the collection of federal student loans and grant overpayments.'

But critics said the department until now had taken few steps to protect access to the database.

Representative George Miller, Democrat of California and chairman of the House education committee, said last night, 'I am pleased that the secretary has belatedly taken some steps to address these fundamental privacy issues. However, it is long past time for the department to step up to the plate and vigorously investigate both the extent of lenders' misuse of the student loan database and the exploitation for profit of federal programs' for student aid.

Some financial aid officers said they believed student loan companies were trolling the database for potential borrowers."

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