Washington — The Fifth Third Bank faces possible federal sanctions after an audit by the Education Department’s inspector general found that the lender had violated a ban on providing inducements to originators of student loans.
The audit, which was made public today, found that the bank and the now-defunct Student Loan XPress had agreed to pay three third parties — MSA Solution Inc., Pacific Loan Processing Inc., and Law School Financial — a premium on loans they originated under three “eligible lender trustee” agreements.
Those agreements allow lenders that are authorized to participate in the guaranteed-loan program, such as the Fifth Third Bank, to serve as “trustees” for entities that are not. The arrangements allow the third parties to make or purchase student loans.
Federal law prohibits the offering of “points, premiums, or payments” in exchange for loan volume. Lenders that violate the law can be suspended from the federal student-loan programs.
The audit recommends that the Education Department end the arrangements and take “appropriate action” to punish the Fifth Third Bank, including fining the lender or withholding the federal guarantee on the more than $3-billion in federal loans originated under the agreements.
It is unclear whether Secretary of Education Margaret Spellings will act on that recommendation before the end of the Bush administration this month, or whether the decision will be left for President-elect Barack Obama’s nominee as education secretary, Arne Duncan. —Kelly Field