• Wednesday, November 25, 2009
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Republican Lawmaker Presses Spellings on Loan-Loophole Losses

Washington — New audit findings suggesting that the federal government lost more than $1-billion through a loophole in a student-loan program have prompted a Republican lawmaker to ask Education Secretary Margaret Spellings what she plans to do about it.

The Chronicle last month obtained the audits carried out on 14 student-loan companies participating in a program that guaranteed the lenders a 9.5-percent return on their loans. An earlier audit by the department’s inspector general suggested that the lenders had used a loophole in the program to receive hundreds of millions of dollars more than they had been entitled to claim.

If the 14 new audit findings are representative of all loan companies that received subsidies under the 9.5-percent program, it would mean the government lost nearly $1.2-billion in improper payments over a six-year period, or about twice the previous estimates.

Ms. Spellings agreed last year to let the loan companies keep the disputed subsidy payments that they already had received. As part of her settlement offer, she also said any loan company that wanted to bill the government for further such subsidies would have to produce audits showing that the lender was making proper calculations, without using the loophole.

Rep. Thomas E. Petri, a Wisconsin Republican who serves on the House of Representatives education committee, later won passage of legislation requiring the Justice Department to approve any settlement by the education secretary that involved more than $1-million. He wrote to Ms. Spellings today, asking whether, in light of the audit findings described by The Chronicle, the Justice Department should now become involved.

“In order to restore integrity to the guaranteed-loan program,” Mr. Petri wrote, “it is vital that we understand where abuse has occurred.” —Paul Basken