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The Education Department's Inspector General says a student loan agency has inappropriately received $35 million in student loan subsidies, and Congressman Tom Petri (R-WI) is insisting that the government should get it back. "And I mean every last penny," he said.
On Nov. 19, the Inspector General released its final audit on the Pennsylvania Higher Education Assistance Agency's (PHEAA) potential abuse of taxpayer subsidies in the Federal Family Education Loan (FFEL) program, through which guaranteed student loans are provided. The report found that PHEAA had received over $35 million in illegitimately-obtained taxpayer funds between 2003 and 2006 by exploiting a special subsidy on bonds issued before 1993. This special subsidy allowed them to receive a minimum of a 9.5 percent rate of return from taxpayers on their loan holdings, which is substantially higher than the normal subsidy rate during that same billing period.
This report comes on the heels of a similar report of abuse by student lender Nelnet in the fall of 2006. The latter report found that Nelnet had attempted to charge taxpayers $1.1 billion in overpayments using the same loophole.
Although the Inspector General recommended that Secretary of Education Margaret Spellings should recover all payments, in March 2007 the Education Department announced that the Secretary had chosen to forgive over $278 million to Nelnet. Rep. Petri organized a bipartisan letter calling on the Secretary to recover the funds forgiven in the Nelnet case, and has continued to aggressively question the Department's decision in hearings and through information requests throughout the year.
To prevent additional giveaways, on Nov. 15, Rep. Petri won unanimous acceptance in the House Education and Labor Committee of an amendment to the Higher Education Act reauthorization bill to require the Justice Department to review any settlements into which the Education Secretary may enter which cost taxpayers more than $1 million. Under the Petri amendment, the Justice Department would have to report its opinion to Congress and the Education Secretary before the settlement could be signed.
"For the past year, I have fought to raise awareness of the tremendous abuse of taxpayer trust relative to the egregious Nelnet settlement," said Petri. "My amendment will ensure that we prevent future abuse and lead to greater fiscal accountability at the Department of Education by requiring a better review of the massive settlements with lenders."
Of the report on the PHEAA audit, Rep. Petri issued the following statement:
The Inspector General's final audit report on PHEAA is yet another clear example of the brazen abuse of the taxpayers' trust that some lenders have exploited with regards to this antiquated subsidy.
I call on Secretary Spellings to fully enforce the Inspector General's recommendations by recovering the $35 million that was inappropriately paid to this lender. And I mean every last penny.
The House Education and Labor Committee clearly spoke on the need for increased fiscal accountability at the Department when they unanimously adopted my amendment requiring Department of Justice reviews of settlements with lenders.
Should the Secretary choose not to enforce the IG's recommendations on recovery, I would hope that she would respect the Committee's intentions and request a DOJ review prior to entering any settlement that falls short of these recommendations.
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