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March 6, 2007

Bipartisan Lawmakers Express Concern With
Nelnet Settlement Wasting $278 Million In Taxpayer Funds


WASHINGTON, DC – Congressmen Tom Petri (R-WI) and Jeff Flake (R-AZ) joined with Rep. Ron Kind (D- WI), Rep. Mark Udall (D-CO), Rep. Jim Matheson (D-UT), Rep. Marsha Blackburn (R-TN), Rep. Ron Paul (R-TX), Rep. Scott Garrett (R-NJ), Rep. Vern Buchanan (R-FL), and Rep. Bob Inglis (R-SC), in sending a letter to Education Secretary Margaret Spellings expressing concern about the terms of a recent settlement with student lender Nelnet over improper payments by the Department of Education.

In the settlement, announced on January 19, 2007, the Secretary affirmed the Department's Inspector General’s findings that Nelnet had billed the government for subsidies to which it was not entitled. While the Department stopped payment on the nearly $800 million in outstanding claims, the Secretary chose not to collect the $278 million already improperly paid to Nelnet, contrary to the Inspector General’s (IG) recommendation.

In their letter to the Secretary, the Members expressed their concern with the failure to adhere to the Inspector General’s recommendation that the Department collect the improper payments in full. Specifically, the IG found that Nelnet's “Project 950” was explicitly created to channel loans in order to bill the Department for a substantially higher taxpayer subsidy.

The IG report found, and the Department confirmed, that Nelnet manipulated its student loan holdings by transferring newer loans through older bonds with higher subsidy rates, in turn billing taxpayers at the higher rate for all its holdings. Subsequently, the volume of loans billed at this rate increased dramatically during this period from $551 million in March 2003 to $3.66 billion in June 2004.

“It is unacceptable that the Department would allow Nelnet to retain these taxpayer funds after having been found manipulating subsidy payments to boost its profits. To put it in perspective, the $278 million in question could increase the maximum Pell Grant for low and middle-income students by nearly $100 per recipient next school year,” stated Petri.

“This is an unfortunate example of the waste, fraud, and abuse that can occur under the Federal Family Education Loan (FFEL) program. For many years, I have been outspoken about the amount of taxpayer dollars wasted on excessive subsidies to lenders," said Petri.

“The Department of Education has a responsibility to taxpayers, and I don’t believe that permitting Nelnet to keep this money is consistent with that responsibility,” said Flake. “The Department needs to make an effort to recover these funds.”


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