Under Secretary of Education Sara Martinez Tucker today announced a settlement with the student lender National Education Loan Network [Nelnet] regarding eligibility of loans for a 9.5 percent special allowance rate.

"After a careful and thorough review of the Inspector General's report and Nelnet's response, the Department of Education has made the decision to end Special Allowance Payments (SAPs) at the 9.5 percent floor rate to Nelnet on loans that were not made from eligible sources of funds," said Under Secretary Tucker. "This decision was reached in the best interests of taxpayers and students as well as the integrity of the federal student loan programs. The federal student loan programs are an important pillar in this nation's system of financing college opportunity and offer students and families the ability to afford higher education."

In the coming days, the Department will issue a letter restating which loans are eligible for 9.5 percent SAPs as set forth in the Higher Education Act (HEA). To ensure that taxpayers' funds are being used appropriately, the Department of Education will require reviews of all pending claims from lenders seeking the 9.5 percent SAPs. These reviews will be conducted by independent accounting firm(s). After this initial review, regular audits and program compliance reviews will be conducted by the Department as part of its ongoing program oversight responsibilities to ensure that individual lender practices and procedures are in compliance with the HEA and all other applicable federal regulations.

In September, the Department of Education's independent Inspector General (IG) alerted the Department to Nelnet's multiple transfers of loans within its portfolio prior to enactment of the Taxpayer Teacher Protection Act. Over a period of 13 months, Nelnet significantly increased its total loan portfolio billed under the 9.5 percent floor.

After reviewing the IG's report, the Department of Education concurred that Nelnet submitted claims for loans that were not made from eligible sources of funds as defined in the HEA and reiterated in regulations. Nelnet disputes this matter.

As part of the settlement announced today, the Department will end SAP payments at the 9.5 percent floor rate on those loans challenged in the IG's report. Other lenders also will not receive payments at the 9.5 percent floor rate until they can demonstrate that their loans come from eligible sources of funds.

###

Top

Back to January 2007