Education Official Put On Leave Following Disclosure Of Stock Ownership

Friday, April 6th 2007, 5:49 pm
By: News On 6

WASHINGTON (AP) _ A Department of Education official who oversaw the student loan industry and owned at least $100,000 worth of stock in a student loan company has been placed on leave, a department spokeswoman said Friday.

Matteo Fontana, who keeps an eye on lenders and guarantee agencies that participate in the Federal Family Education Loan Program, was placed on leave with pay a day after his ownership of stock in Education Lending Group Inc. was disclosed by Higher Ed Watch, part of the New America Foundation, a nonpartisan think tank.

The case has been referred to the department's inspector general, John Higgins, said department spokeswoman Katherine McLane.

At issue is whether Fontana violated department conflict of interest rules.

McLane also said Education Secretary Margaret Spellings has asked for Lawrence Burt to resign from the department's Advisory Committee on Student Financial Assistance. That panel provides guidance to Congress and the secretary of education on student financial aid policy.

Burt, associate vice president and director of student financial aid at the University of Texas at Austin, is under investigation by the UT System Office of General Counsel regarding allegations of impropriety.

Securities and Exchange Commission records indicated Burt also owned 1,500 shares in Education Lending Group Inc., the former parent company of Student Loan Xpress. The company was on UT's preferred lender list, but Burt, who sold the shares in 2003, denied that his stock ownership had any connection to that listing.

Student Loan Xpress is now part of CIT Group Inc., one of several lenders targeted by New York Attorney General Andrew Cuomo in his probe of the student lending industry.

Cuomo is investigating allegations of possible kickbacks to school officials for steering students to certain lenders. Cuomo's investigators say they have found numerous arrangements that benefited schools and lenders at the expense of students.

His office on Friday issued new subpoenas to CIT Group Inc. and Student Loan Xpress, seeking information on stock and gifts made by the company or its subsidiaries to federal or state government officials.

The office also sent subpoenas to SLM Corp., commonly known as Sallie Mae, for information on any current or former Sallie Mae employees who worked at the Education Department over the past six years, said Cuomo spokesman John Milgrim.

Cuomo's office has begun its own investigation into Fontana and is meeting with Department of Education investigators about the case next week, Milgrim said.

Fontana worked at Sallie Mae from 1994 to 2001, according to Sallie Mae spokesman Tom Joyce. Fontana did not respond to messages, and the Education Department's press office declined to make him available for comment.

Fontana, a career employee, has worked at the department since 2002. He is the general manager of Financial Partners, an office involved in overseeing the federal student loan program. In September 2003, Fontana worked as a deputy in that office.

SEC records show Fontana had at least 10,500 shares of Education Lending Group Inc. in September 2003. The shares were valued around $9.50 each at the time, according to Cuomo's office. The Education Department would not say whether Fontana still owns the stock.

Senate Education Committee Chairman Edward Kennedy, D-Mass., called Friday's action by the Department of Education swift and appropriate.

``With American families struggling to put their children through college, we owe it to them to end corruption and conflicts of interest when it comes to student loans,'' he said.

Kennedy has said he wants to trim federal subsidies to banks that make student loans. The subsidies are designed to guarantee lenders a rate of return that makes student lending profitable.

Michael Dannenberg, director of education policy at the New America Foundation, said the subsidies are excessive and the industry's stake in them led to some of the alleged conflicts.

``What's happening is the banks appear to be giving a taste of the corporate welfare in the system to some colleges, some college administrators and maybe even some people in the Department of Education in order to secure business,'' Dannenberg said.