Democratic Lawmakers Urge Spellings To Conduct Oversight Of Federal Student Loan Program To Prevent Misuse Of Taxpayer Dollars

Wednesday, March 7, 2007

WASHINGTON, DC -- Democratic lawmakers on the House Education and Labor Committee today wrote to U.S. Secretary of Education Margaret Spellings to express serious concerns about the Department of Education's recent settlement agreement with Nelnet, Inc., one of the nation's largest student lenders, and to ask about the Department's plans to prevent lenders from inappropriately taking advantage of the federal student loan programs. The settlement agreement was announced in January after the Department's Inspector General released a report last September that revealed that Nelnet had egregiously misused a provision in the Higher Education Act to receive hundreds of millions of dollars in overpayments in loans by the federal government.

"Proper administration of the student loan programs is critical to the millions of students and families paying for college," the lawmakers stated in their letter. "In this budget environment, we must do all that we can to ensure that available tax dollars are used to provide affordable college loans, and we hope that you will take appropriate action to fully ensure that student aid funds are used for their intended purpose, to help students and families pay for college."

The 10 lawmakers who signed onto the letter are U.S. Reps. George Miller (D-CA), Chairman of the House Education and Labor Committee, Ruben Hinojosa (D-TX), Chairman of the Subcommittee on Higher Education, Lifelong Learning, and Competitiveness, Dale E. Kildee (D-MI), Chairman of the Subcommittee on Early Childhood, Elementary and Secondary Education, Dennis Kucinich (D-OH), Rush Holt (D-NJ), Danny Davis (D-IL), Raul Grijalva (D-AZ), Linda Sanchez (D-CA), Dave Loebsack (D-IA), and Mazie Hirono (D-HI).

The full text of the letter is below.

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March 7, 2007

The Honorable Margaret Spellings

Secretary of Education

U.S. Department of Education

400 Maryland Avenue, SW

Room 7W301

Washington, DC  20202

Dear Secretary Spellings:

The "9.5 percent provision" in the Higher Education Act (HEA) guaranteed lenders an interest rate of 9.5 percent on all loans made from bonds taken prior to 1993.  While Congress initially sunset this provision in 1993, lenders found ways to circumvent the sunset and continue to receive this high guaranteed return.  For more than a decade, Congress has been working to close this loophole and recently permanently disallowed any form of this subsidy for for-profit lenders.  This is a positive step in ensuring that federal funds are used in the most efficient way possible to help students and families gain access to higher education.

However, there is continued concern with the use and administration of 9.5 percent loans.  The September Office of Inspector General report, "Special Allowance Payments to Nelnet for Loans Funded by Tax-Exempt Obligations," highlighted the egregious misuse of a 1980 provision in the HEA by Nelnet, Inc., one of the nation's largest student loan lenders, resulting in hundreds of millions of dollars in overpayments to Nelnet by the federal government. 

The Nelnet example represents a serious misuse of federal funds, and it is likely that this is not an isolated case.  It is critical for you to conduct full oversight of the use of the 9.5 percent provision by all lenders to ensure that all participants in the Federal Family Education Loan Program are in compliance with the HEA, its amendments, and Department regulations. 

The Department of Education's recent settlement with Nelnet, Inc. and the January 23, 2007 Dear Colleague letter (FP-07-01) indicate a potential change of policy in regard to the eligibility and administration of 9.5 percent loans.  In light of these recent changes, please provide:

1.  Your intended actions in regard to lenders' use of the 9.5 percent loophole, including any oversight of additional lenders;

2.  A history and reasoning for the settlement decisions with Nelnet, Inc.; and

3.  An explanation of the January 23, 2007 Dear Colleague letter, including the determination of eligibility for 9.5 percent payments and how this differs from previous positions.

Proper administration of the student loan programs is critical to the millions of students and families paying for college.  In this budget environment, we must do all that we can to ensure that available tax dollars are used to provide affordable college loans, and we hope that you will take appropriate action to fully ensure that student aid funds are used for their intended purpose, to help students and families pay for college.

Thank you for your attention to this request.

Sincerely,

MEMBERS OF CONGRESS

FOR IMMEDIATE RELEASE
Contact: Tom Kiley / Rachel Racusen
2181 Rayburn House Office Building
Washington, DC 20515
202-226-0853