October 3, 2008

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

Comments

1. The Chronicle continues its anti-FFELP campaign.

   Two senior Members of Congress write GAO asking them to review whether the Direct Loan program has the capacity to more than double its loan volume. The Chronicle’s response: ZIP. Does not cover it.

   The same letter asks the GAO to investigate how the government contractor used by the Direct Loan program is being paid and whether it fulfilled its original contractual obligations.
   The Chroncile’s response: ZIP.

   What will it take for the Chronicle to cover both programs with the same degree of ferocity?

   — Full Monty Hall    Oct 3, 08:17 PM    #

2. What will it take for the press in general to cover ANY issue in a “just the facts” manner so we can all figure out what’s real on an issue? I have begun to think that we need a new govt entity to rate the press’ level of bias or one-sided reporting. I think it will take that kind of sunshine type legislation for decent “reporting” to return in this country. Right now all we have is mostly newspapers full or editiorials pretending to be reporting.

   — Former Senate Staffer    Oct 4, 04:07 PM    #

3. Comments 1 and 2 are brought to you courtesy of the Private Lenders Association of America.

   — An ubiased the person    Oct 6, 08:37 AM    #

4. Spellings is one of the Bush coffee gals who he sent out to be cabinet members to gain experience. She has no qualifications and has been a disaster. This story is a parallel to the mortgage crisis…greedy crooks let range the field in WAshington to make money off the Federal government and hapless victims like home owners and students. All this means is that the economic crisis looming will get much larger. The greed has spread to campuses across the nation. Football coaches making $2 million a year, public private partnerships to avoid having to sell bonds at D classification by many over extended institutions. High tuitions balanced by unfettered and unregulated student loan programs leaving young people hopelessly in debt. And it is not all the Bushes either. Biden did the bidding of the credit card companies mostly located in Delaware in getting a change in federal law to prevent bankruptcy of anyone with credit card debt including millions of formers students etc.

   — fred douglas    Oct 6, 08:57 AM    #

5. Does Unbiased Person really mean to suggest that the media, Congress and the GAO should be less vigilant in their oversight of a 100% government-run program?

   All we’re asking for is a level playing field, if not from Democrats in Congress, at least from the Chronicle of Higher Education.

   Is that too much to ask?? A truly “unbiased” person would say, NO!

   — Full Monty Hall    Oct 6, 10:51 AM    #

6. I can tell you one thing, they should look at NelNet, and Edfinacials books a little closer. Just think we could use that billon dollars on scholarships.

   — Remember the Alamo    Oct 6, 11:50 AM    #

7. Now I get it – socialists steal from the rich and give to the poor – conservatives steal from everyone and give to their friends.

   — Keir Hardie    Oct 6, 12:38 PM    #

8. #7 the 9.5 rule was abused during clinton’s term and cleaned up under bush’s term. The GOP is the one calling for loan companies to pay all the money back. Say like Nelnet who still owes over 350 million that spelling let them keep. I say if you stole like they did you should pull their title 4 lender rights and make them pay back all the money.

   — Remember the Alamo    Oct 6, 01:18 PM    #

9. The “Chronicle” has good cause to be writing exposes about this issue. The student loan industry has repeatedly been noted for massive over billings of the federal government. And abusive treatment of borrowers. And inappropriate attempts at influence peddling within academia itself.
   So its quite refreshing that Rep. Petri is once again bringing these problems to the fore. The USDOE has had longstanding problems in proper oversight of the student loan situation. And unfortunately Spellings seems to be so deep in the pockets of the SL industry that the lint therein would appear to be somewhere out past Mars. In other words Spelling is disinclined to take serious action to remedy over billings and other problems because of a too close relation with the very companies she’s supposed to be monitoring.
   And as academics we do have to consider that the 1.2 billion + could have gone to student grants, federal support grants and other programs to keep academia functional. Precisely how and why our educational funding system became co-opted by corporate entities could make a very influential essay or book.
   In short, Chronicle is doing an immeasurable service by these articles and exposes. If for no other reason than to drive out from the shadows what have been longstanding problems in the student funding system.

   — Atana    Oct 6, 07:58 PM    #

10. I agree that many of these FFELP lenders “gamed” the system. Gaming is the new PC word for committing fraud! What I find very odd is that it is the Republicans who let this happen and who are now protesting the loudest. Mr. Bush’s own Secretaries of ED ( both Spellings and Paige) let this happen on their watch. Those are the simple, objective, unbiased facts.

    I am afraid that the cow is out of the barn on this one though…and that cow has been milked bone dry!!! In our current crisis, there’s not much we can do to recover these funds. Spilt milk. Move on.

    — Feudi Pandola    Oct 8, 09:06 AM    #

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