Student Loan Interest Giveaway at ED

Posted to Schools Matter 09.30.06:

This past Friday afternoon news dump included, yet, another Office of Inspector General (OIG) Report on ED corruption, this one outlining another massive jettisoning of federal tax dollars to line the pockets, this time, of the student loan corporation, Nelnet, which, by the way, is tied for # 11 on John Boehner's list of political contributors.

The amount in question is $278,000,000 paid out so far to Nelnet in interest that it has "earned" from a crooked financial maneuver that ED continues to allow. Even though ED was allowing this practice during Paige's reign at ED (despite a report from the GAO in 2004), it was after Spellings arrived to take charge that her own OIG's first report was issued in May 2005, calling for ED to halt the overpayment to a small New Mexico lender which had abused its way to an unearned $36 million in interest payments.

Instead of taking action, however, Spellings ignored the OIG Report, even though she was warned by the OIG and others that the New Mexico deal was small potatoes compared to what was happening among corporate providers of student loans. Still she ignored the OIG recommendations. Now we find these conclusions in the most recent OIG Report, included in the Friday news dump:

We estimate that Nelnet—

• Was improperly paid about $278 million in special allowance from the quarter ended March 31, 2003, through the quarter ended June 30, 2005; and

• Could be improperly paid about $882 million in special allowance after the quarter ended June 30, 2005, if Nelnet’s billings are not corrected.

So while Spellings was being warned by OIG in May 2005, Nelnet had already carried off over a quarter-billion dollars since 2003. Since June 2005, Nelnet has pocketed another $178,000,000 as a result of Spellings' inaction. If she waits until New Year's to stop the thievery, Nelnet will have pocketed another $36,000,000. If she waits until Spring, another $34,000,000 on top of that. In short, Spellings's inaction is costing $11-12 million a month.

Of course, Spellings' media stooge, Ben Feller, does not mention these facts in the official story, the only one that has been filed except a pitiful blip by Reuters. Instead, Feller has this:

Education Secretary Margaret Spellings will review the report and Nelnet's response before deciding how to proceed, said spokeswoman Katherine McLane.

"Secretary Spellings takes protection of American taxpayers very seriously and is concerned about the issues raised in the inspector general's report," McLane said.

Concern? She was not concerned in May of 2005 when her own IG gave her the first recommendation to stop this practice, an authority that the GAO had already assured her that she had. Wonder why? Could it have anything to do with John Boehner and Buck McCown and the other corrupt hacks who put her where she is today?

Here is a bit of how the scam works from a much more agressive Feller piece in 2005. Wonder what happened to him:

A Government Accountability Office report last year found that subsidy payments skyrocketed from about $209 million in 2001 to more than $600 million as of June 2004. The government said it ultimately spent about $1 billion on the payments last year.

The GAO attributed much of that increase to a drop in interest rates. But it also said the growth was tied to a number of financial maneuvers lenders used to get the 9.5 percent return -- including a method denounced by the IG. Under that arrangement, the lender issued a "refunding bond" to pay off the original, pre-1993 bond and also to finance new loans that it asserted were also eligible for the special subsidies. Because those refunding bonds mature later than the original ones, they enabled lenders to continue billing the government for the subsidies.

The GAO report, issued in September [2004], called the subsidies "unnecessary" and said the Education Department had the authority to end them immediately.