June 8, 2007

Student Loan Reform Bill Would Prohibit Trustees
and Presidents from Serving on Bank Boards

In the wake of student-loan scandals that have affected several colleges and universities, Congress is moving rapidly to reform the student-loan industry. Certain provisions of “The Student Loan Sunshine Act” (H.R. 890), if sustained in final legislation, will have detrimental effects on governing boards and their members as well as on presidents and chancellors. The legislation would apply to all colleges and universities, public and private.

You are receiving this “AGB Alert” because we believe it is essential that appropriate officials within your institution monitor developments in the coming days. It is likely that the legislation, which the House already has passed, will be incorporated into the Reauthorization of the Higher Education Act, which is on a fast track on Capitol Hill.

Most reform provisions are good and supportable—and we believe necessary—and they will prevent further abuses by lenders and institutional officials. The legislation creates stricter codes of conduct for university employees and places certain prohibitions on gifts from lenders to student-loan officers.

Other provisions go too far, creating untenable conditions for board members and college presidents as well as confusion on charitable giving by banks to colleges and universities. Of specific concern: 

  1. Trustees would be forced to choose whether to remain a member of the college or university governing board or the board of a financial institution. 
  2. College and university presidents would be prohibited from serving on the board of a financial institution.
  3. Colleges and universities would face confusing and conflicting choices as to whether they could accept philanthropic gifts from such institutions.

AGB has sent this Alert to member chief executives, board chairs, board professional staff members, and in-house legal counsel. We urge you to monitor developments regarding this legislation daily and to discuss your concerns with appropriate individuals locally and in Washington, D.C.