Loan Companies Abusing Student Database

Usually, violations of database security come from those who aren't authorized to access the data. But in an unusual turn of events, some financial firms are now under fire for misusing a database that was built partly for them.

The National Student Loan Data System (NSLDS), a database operated by the federal government, contains private information on approximately 60 million students. It was created in 1993 to help universities and lenders share information on students' eligibility for student loans, and to help lenders collect payments.

In the last week, however, there have been several reports of growing concern among the database's operators -- and university financial aid professionals -- that lenders are "mining" the database for potential sales and refinancing leads.

The system allows students, universities, and financial institutions to access loan information -- typically just one record at a time -- in order to check on the status of a loan or a student's eligibility. Lenders are not supposed to be able to access the system unless they have the student's permission or a legitimate complaint against a non-paying student.

But a report in yesterday's Washington Post said that lenders' queries to the database have become so rampant that the Education Department was considering a temporary shutdown of the system. Sen Edward Kennedy (D-Mass.) earlier today sent a letter to Education Secretary Margaret Spellings, asking the department to block lenders from the database until the allegations could be investigated.

The NSLDS does not say which vendor's database it uses, although its privacy policy does say that the system is housed offsite by a contractor. Each individual who uses the database is given a separate user ID and password, and students are required to use a PIN and a Social Security number to gain access to their own records, the NSLDS site says.

Two years ago, an audit report by the Assistant Inspector General found that there were significant security problems with the NSLDS database. One of the chief complaints was that there was insufficient effort to verify the identities of third parties and contractors who accessed the system.

Officials say the federal government has spent more than $650,000 since 2003 to secure the database, and that it has blocked numerous unauthorized attempts to access the system. However, the man formerly in charge of the NSLDS, Matteo Fontana, was accused earlier this month of holding more than $100,000 in stock from a student loan company.

— Tim Wilson, Site Editor, Dark Reading