When are people going to start bringing Direct Lending into this discussion?  And not just as an idea of a solution to the "big bad lenders."  The Direct Loan program charges students a fee (which most lenders have been paying on behalf of the student and guarantee agencies), and limits the borrower's repayment benefit to a .25% reduction for signing up for ACH.  This pales to the benefits that many of the lenders in the FFEL program are offering.  Consolidation with the FFEL program also proves to be a better deal for most students.  Why is none of this being focused on?

 If this argument is truly about the best interest of the students, then the Direct Loan program needs to be scrutinized as well.  Any school that only offers loans through the Direct Loan program is not providing students with the choice that so many seem to be demanding be available for students.  Directors at the Direct Loan schools need to be asked "Why did you decide to only offer Direct Lending?  What went into your decision to only offer Direct Loans?"  "Are you sure you are offering the best program for your students?"  

 If these are questions that are going to be asked of schools that participate in the FFEL program, then they darn well better be asked of schools that only participate in the Direct Loan program.

"Over the last five years, private lenders have been extremely aggressive in marketing consolidation loans to Direct Loan borrowers, offering them rebates on fees and interest rates that the government is prohibited by law from matching"

It is so awful that those dirty private lenders provided a far better value proposition to 800,000 students.  Those students should still be paying more for the privilege of doing business with our very efficient federal bureaucracy.

Excellent research.  I believe a through-and-through investigation of all Department of Education employees who work on Federal Student Aid is appropriate at this time.

For example, the Head of the Office of Federal Student Aid left a VP position at Sallie Mae to work for the federal government.  What was this person's compensation with Sallie Mae vs. her government salary?  What interest does this person or family members still hold in Sallie Mae, or other student loan companies?

Okay, obviously the author of this article seems to have a personal bias against private lenders making any money on the Federal Loan Program. How dare they make money. Let's review a little history and look at what led us to this place. Why was it that congress members didn't just give away our tax dollars directly to students who needed it? Simple answer: They do. They are called Pell Grants. But that money doesn't go nearly as far to help nearly as many people. So, how do we make our tax dollars stretch? We make it worth while to private companies to lend their own money at affordable rates. In short, we leverage someone else's money, and buffer students from economic trends (with government subsidies) that could make financing less affordable. Invite the powers of commercial competition into the industry to drive benefits to borrowers that the DOE can't offer because it would litterally take an Act of Congress to do so. If not balanced by private competition Direct Lending would be a Federal Monopoly.

Asside from that, the Emergency Consolidation Act of 1995 was passed to help the Direct Lending Program get rid of its excess volume because it does not have the capacity to handle the monolithic volume of students consolidating their student loans. Let us not forget from whence we came, lest we repeat our mistakes. The system is the way it is for good reason. Of course any system can be made better. But to the author of this article: please discuss the issues after reviewing the history of the situation. This sort of inflamatory writing stile is probably the cause of many problems. Why should a scandal around Matteo Fontana's activities give rise to tarnishing other subjects?

...there's just no enforcement by the Department of Education.  Simple as that.  In other financial services areas, if a participant breaks the rules, there are swift and relevant consequences.  The student lending business has operated in a near consequence-free environment.  But google around....there's several documented cases of student loan industry employees drifting back and forth between the Dept and industry.  Coupled with no policing of regs....all hell breaks loose.

 http://college-loan-search.blogspot.com

One of the critical factors in the Student Loan Scandal is that Grover Whitehurst of the U.S. Education Department's Institute of Education Sciences repeatedly blocked the attempts by Jon Oberg to bring the Student Loan Scandal to the attention of appropriate officials.  When questioned, Grover stated it was "greek to him".  Those who observed Grover during this period of time knew him to have a great deal of animosity towards Jon Oberg.  Grover did not act befuddled or confused as if he were being addressed in a foreigh language.  He said it was "Greek to him".  Grover understood perfectly that the Bush Administration did not want this to be revealed and carried out their wishes.   He did not ask for clarification by either the Office of General Counsel in the Department of Education or the ethics office of the Department.  The investigation was faulty in that it did not ask for a statement from ALL of the supervisors of Jon Oberg who also interacted with Grover Whitehurst.  This was a shoddy investigation as the report of the GAO and House and Senate committees responsible for indicates.  Had Grover gone forward, this problem could have been brought to attention four years ago instead of being covered up.

The Dirty Lenders appear to have a motive with all the extra options they offer. And if the student does not take advantage of all these great options (Credit Card, Checking and Savings Accounts with the Dirty Lender Bank) they face much suffering during the payback of that private student loan. For example, private loans can not be consolidated, rates don't change, annoying payup phone calls. Also I want to make sure that CitiBank gets its name on this blog site. Not a very friendly bank. Am I the only one seeing this?