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Castor seeks checkups on college lenders

By Tom Marshall and Thomas Lake, Times Staff Writers
In print: Wednesday, June 18, 2008

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Two men with criminal convictions and records of financial mismanagement found a perch in the federal student loan industry, and there was no law on the books that could have stopped them.

Inspired by that St. Petersburg Times investigation, U.S. Rep. Kathy Castor plans to introduce federal legislation to close the loophole.

"We must check backgrounds of people entering the student lending business to ensure that we are not putting our children at risk and jeopardizing their college dreams," she said Tuesday. "Today, no one is taking responsibility for checking lending applicants. Our legislation will change that."

One month ago, Castor was sitting down with her Sunday paper when the Times story caught her eye.

Two Tampa Bay companies — Roger Wayne Morgan's Academic Financial Services and Joseph A. Pursley's Student Funding Services — had collapsed amid lawsuits and a federal raid, leaving creditors, employees, and aggrieved borrowers in the lurch.

"I cut it out, took it up to Washington with me, found Chairman (George) Miller on the floor of the House and said, 'I'm going to show you a story you're not going to believe,'" said Castor, a Democratic congresswoman from Tampa.

With Miller's support, Castor said she planned to write a bill that would exclude delinquent debtors and convicted criminals from the federal student loan business. It could be included as part of the latest version of the Higher Education Act or stand by itself.

There was no such law in place when Morgan and Pursley applied to participate in the federal loan program beginning in 2004. Both were backed by the Bank of New York, which said it moved to sever their contracts in 2007 when it learned more about their backgrounds.

Before he got into that business, Morgan earned felony convictions for safecracking, breaking and entering, and larceny following his first arrest in 1992, when he broke into a North Carolina movie theater and made off with $400 in rolled quarters.

Pursley came to Florida with $2.8-million in unpaid debts, after the Michigan Bar Association's committee on character and fitness rapped his "cavalier approach to other people's money" and advised the state to reject his application to practice law.

Last March, with his company in ruins, Morgan was arrested on 24 counts of writing bad checks. Pursley's company, too, had disappeared, following a 2007 federal raid prompted by reports of forged loan applications, according to e-mails obtained by the St. Petersburg Times under open records laws.

Experts say Castor's proposed changes are sorely needed, and could be made without putting an undue burden on government regulators.

"We can't do a multistate background check on every applicant," said Barmak Nassirian, deputy director of the American Association of Collegiate Registrars and Admissions Officers. "But we should at the very least ask the question and make (applicants) attest that they're meeting the requirements of the law."

Such fixes would be a "common-sense solution" to lax oversight by the federal government, said Stephen Burd, a senior fellow at the New America Foundation.

Under federal law, there is no prohibition against ordinary felons participating in the loan program. Those who have committed a felony with government money in the last five years are barred, but officials say applicants are not asked whether they have done so.

Beyond that simple change, Nassirian recommended that Congress consider barring other felons — such as those convicted of consumer fraud — from handing out federal loans.

"Who's going to stand up and say these guys should participate?" he said, referring to Morgan and Pursley. "I think people should be given second chances. But that doesn't mean you can be a banker, handling millions of dollars in public funds."

Tom Marshall can be reached at tmarshall@sptimes.com or (352) 848-1431. Thomas Lake can be reached at tlake@sptimes.com or (813) 226-3416.