Washington — A final audit report released today by the U.S. Education Department found that the Pennsylvania Higher Education Assistance Agency has received at least $33-million in improper federal subsidy payments on student loans.
The student-loan agency, known as Pheaa, was one of several lenders that took advantage of a loophole in federal student-aid law that allowed it to receive guaranteed subsidies from the government far above market-based interest rates.
The controversy involving the overpayments dates from the 1980s, when Congress allowed nonprofit lenders — those that finance their loans with tax-exempt bonds — a guaranteed return of 9.5 percent to help protect them at a time when the economy was in the doldrums and the cost of making loans was high. Congress eliminated the 9.5-percent guarantee in 1993 but grandfathered in loans already made.
Most nonprofit lenders maintained that the government’s regulations allowed them to continue receiving the 9.5-percent return by simply refinancing bonds issued before the cutoff date.
In response to today’s report, Edward M. Kennedy, a Democrat and chairman of the Senate Health, Education, Labor, and Pensions Committee, issued a statement urging the Education Department to move aggressively to recoup money from Pheaa and to undertake a full-scale review of every lender that received subsidies after the 9.5-percent law was repealed.
“It’s obvious that we’ve only scratched the surface in terms of revealing the full extent of the 9.5-percent-loan scandal,” Senator Kennedy said.
The interim president of the Pennsylvania student-loan agency sent a letter to Margaret Spellings, the U.S. education secretary, urging her to reject the audit.
“Pheaa has always been in compliance with the department’s regulations,” said James Preston, the interim president. He said that the audit report “ignores 10 years of our compliance with regulations.”
The department’s review of payments to Pheaa marked the third major investigation that the inspector general has conducted into lenders’ misuse of federal student-aid dollars in recent years. —Sara Hebel
