Higher Ed Watch update
Higher Ed Watch reports:
The student loan company Nelnet announced late Friday afternoon that it has reached “an agreement in principle” to settle a Federal False Claims lawsuit filed against the corporation and five other lenders that engaged in a scheme to bilk taxpayers by systematically overcharging the government for subsidy payments on federal loans they made to students. The lawsuit, brought by by Jon Oberg, the former Department of Education researcher who uncovered the 9.5 student loan scandal, has sought the return of approximately $1 billion to the government in overpayments these lenders improperly received.
According to a news release Nelnet put out at around 4:30 p.m. on Friday, the Nebraska-based lender has agreed to pay $55 million to settle the case. The bulk of the money will go back to the federal government. The company said that it was pleased with the deal, as it will not be admitting any wrongdoing.
It appears that Oberg has also reached tentative agreements with the other lenders in the case as well. About an hour before Nelnet issued its release, John F. Anderson, the federal judge presiding over the case, issued an order canceling the trial, which was scheduled to get under way in the U.S. District Court for the Eastern District of Virginia on Tuesday.
Rdan here…The thought does occur as ‘personhood’ for corporations becomes a sharper and upfront reality in the political arena melds with the ‘it will not be admitting any wrongdoing’ tradition of letting corporate officers off the hook for bad behavior, we might regret not addressing these trends in any serious way.
Following the links at Higher Ed brought me to this document:
It’s absolutely fascinating. At heart it’s a problem of people trying to use legislation to do something reasonably complex and making a complete hash of writing the legislation to do that thing. The biggest error seems to have been that any loan funded under the guarantee system retained that guarantee even if it were refinanced. Even if it were only financed under the guarantee for a day.
To be honest, the only thing which really surprises me is that it took the loan companies nearly a decade to realise this. It really was utmost incompetence in writing the law.
And, although I’m not a lawyer, I’m not convinced that the companies would have lost the case if it went for trial. That document seems to show that while what they did was greedy, possibly immoral, it didn’t seem to be illegal….and thus this is a fault of the legilsation, not the companies.
LOL…yes Tim, but the legislation was actually written with help from lobbyists by legislators who could also read. I will provide data at a later date. Strictly legal? no is my impression, but again must dig back into files for lawyer talk.
Thanks for checking…I haven’t done higher ed loan in a long time and need a refresher course. The problems with the original legislation were duly recognized and quite thoroughly ignored. Again I don’t have links handy, but will.
http://www.usnews.com/usnews/edu/articles/031027/27loans.htm Big money on campus from 2002 changes in legislation.
“The stakes are enormous, for the private loan industry–and for taxpayers. Since last October, under the federal student loan program, 6.3 million students and their families have borrowed a total of $44 billion to help cover the cost of tuition. There are two basic types of federally backed loans: Students can borrow directly from the government–at schools that have signed up with the government’s direct-loan plan–or they can borrow from a lender such as Sallie Mae as part of the Federal Family Education Loan Program, or FFEL. Typically, a college or university participates in one program or the other, but not both.
Many education finance experts consider the direct-loan program more efficient than FFEL. Simply put, direct loans cut lenders out of the picture. Instead of paying subsidies to banks for making loans, the government earns the profits. Government figures show that direct loans typically bring in 22 cents for every $100 borrowed, after deducting for administrative expenses. FFEL, meanwhile, costs the treasury $12.80 for every $100 borrowed.
But for private lenders, the FFEL program is a no-lose game. The federal government guarantees repayment of defaulted loans. The loan program, growing each year, can be a hugely profitable business. Sallie Mae, formally known as the SLM Corp., earned $792 million last year, and its chief executive, Albert Lord, pocketed $33.6 million in salary, bonus, and stock option payments the year before (box, Page 40). Its student loan business provided the lion’s share of Sallie Mae’s profits.
Things weren’t always so rosy. Just six years ago, the government’s new direct-loan program was gobbling up more and more student business. What to do? For Sallie Mae and other private lenders, the answer was simple: Go for the jugular.
What follows is the inside story of how these powerful private interests turned things around, undercutting the direct-loan program and wooing away big schools like Michigan State. Much like old-time political ward bosses, they used money and favors, along with their friends in Congress and the Department of Education, to get what they wanted. Sallie Mae, for one, engineered changes in education laws that increased its profits and damaged the direct-loan program. One such change, adopted last year, could cost taxpayers up to $8 billion by 2011. Critics of the private lending industry also fault President Bush’s education team for undercutting direct loans. Says Barmak Nassirian, an official of the American Association of Collegiate Registrars and Admissions Officers: “The administration is causing a slow strangulation of the direct-loan program.”
I need to add that many schools saw the dollar signs as described in another part of the article. Win and win as they saw it for this niche.