Lenders abusing federal student borrower database

Lenders with access to an Education Department database of student borrowers have repeatedly violated federal laws, The Washington Post reports. The wrongdoing is so pervasive that Education is considering shutting down the database until it can tighten security, the Post said.

Students' Social Security numbers, e-mail addresses, phone numbers, birth dates and sensitive financial information such as loan balances are in the database, which contains 60 million student records and is covered by federal privacy laws. "We are just in shock that student data could be compromised like this," said Nancy Hoover, director of financial aid at Denison University in Ohio.

The news comes as Congress is focusing on abuses in the student loan industry.

This month, a previously obscure Education Department official named Matteo Fontana was suspended after the revelation that he owned more than $100,000 worth of stock in a student loan company while he worked in a unit that helped oversee the industry -- and the student loan database. The stock holding raised questions about a possible violation of conflict-of-interest rules.

According to participants at a meeting, Education officials feel the inappropriate searching has been escalating recently.

Officials grew so concerned that in April 2005, the department sent out a letter to database users warning that inappropriate use of the system -- in other words, looking for information without authorization -- could cause their access to be revoked. The letter said the agency was "specifically troubled" that lenders were giving unauthorized users -- such as marketing firms, collection agencies and loan brokerage firms -- the ability to access the database.

"Information may not be used for any other purpose, including the marketing of student loans or other products," wrote Fontana, then general manager of a unit in the department that oversaw the lending industry.

The lenders are most likely using the database to build marketing databases, something wholly against the rules.

"The database is being misused by the industry to raid the direct loan portfolio," said Craig Munier, director of scholarships and financial aid at the University of Nebraska at Lincoln, who was at the meeting with Shaw. "It's certainly a misuse of the intended purpose of the information and was certainly not what we intended in the higher education community when we built" the database.