Democrats Want Inquiry on 9.5 pct Student Loans
Thursday, November 1, 2007
Printable FormatReuters by Kevin Drawbaugh
WASHINGTON- Six Senate Democrats called on Thursday for a complete accounting by the Bush administration of overpayments by the U.S. Education Department to college student loan firms under a loan program that guaranteed the firms a 9.5 percent interest rate.
The overpayments may have totaled hundreds of millions of dollars from 2003 to 2006 and taxpayers have a right to know the actual amount, the senators said in an October 31 letter sent to the department's inspector general.
"Taxpayers also deserve information on which lenders were involved, what methods they used to claim these subsidies unfairly, and why the department allowed the inappropriate subsidies to be paid," the senators in a statement.
The letter requesting the investigation was signed by Illinois's Barack Obama, New York's Hillary Clinton, Washington's Patty Murray, Massachusetts' Edward Kennedy, North Dakota's Byron Dorgan and Maryland's Barbara Mikulski.
The request adds to numerous inquiries into student loans and the Education Department. Not only the 9.5 percent loan program, but student loan marketing practices have been under scrutiny for months since a scandal over kickbacks and conflicts of interest embarrassed the $85 billion industry.
During the scandal, House education committee Chairman George Miller said the Justice Department was looking into an audit of lender group Nelnet Inc.
Nelnet earlier this year agreed to a settlement with the Education Department over an audit by the department's inspector general of a portfolio of loans that got special payments under the 9.5 percent loan program.
Under the settlement, Nelnet was allowed to keep $278 million of the payments it received before July 1, 2006, while foregoing subsequent claims.
The company said the audit found an increase in special allowance payments to Nelnet was based on what the inspector general determined to be ineligible loans. Nelnet said it disagreed with the inspector general and believed it was owed the payments by the government.
The senators said the Nelnet probe indicates other investigations are needed.
"Dozens of lenders have received 9.5 percent special allowance payments during the 27-year history of the subsidy, so it is likely that the sum total of improper payments is much higher," the letter said.
The senators also said in their letter that Education Secretary Margaret Spellings recently said her office does not plan to conduct an audit of the program and expressed doubt the total amount of overpayments is "a knowable number."
An Education Department spokeswoman declined to comment.
Separately, Miller and House education committee senior Republican Howard McKeon, of California, said on Thursday that persistent college cost inflation will be addressed in higher education legislation expected to be taken up this month.
"After decades of exploding college costs, America has reached a crisis point. Millions of Americans are straining to afford a higher education, or forgoing the opportunity altogether," McKeon said in a statement.
He wants to ensure that consumers get more and better information about rising higher education costs.