Probe of Student Lending Overpayments Confirmed

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December 06, 2007 9:30 AM

The Education Department's inspector general has begun an effort to determine how much money the department may have paid in improper subsidies to student lenders.

Inspector General John P. Higgins Jr. has already confirmed $278 million in improper payments to the student loan company Nelnet. In October, the Washington Post had estimated the Education Department may have given as much as $330 million more in potentially excessive payments to other student lenders under an outdated rule. 

Nelnet has denied wrongdoing. The Education Department declined to pursue the company for compensation.

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The amount of money the department may have improperly paid has been a matter of question. 

In an interview this fall with the Post, Education Secretary Margaret Spellings said, "I don't know if it's a knowable number...I guess it's knowable by somebody. But my inspector general doesn't know it, to my knowledge."

Shortly afterward, several Democratic U.S. senators, including Patty Murray, Wash.; Barack Obama, Ill.; and Hillary Clinton, N.Y.; asked Higgins to find out the exact figure.

On Nov. 14, Higgins' office responded in a letter, a copy of which was obtained by ABC News.

"[W]e are presently discussing the most efficient and effective methodology and approach for performing this review," the letter stated. Once that was completed, the letter said, Higgins hoped to discuss recommendations in mid- to late December.

In the 1980s, when interest rates were higher, Congress guaranteed lenders a 9.5 percent rate of return to keep student loan rates low. In the early 1990s, when interest rates dropped below 9.5 percent, Congress tried to end the guarantee. But lenders reportedly found ways to make new loans conform to the old program and clear millions in payments the inspector general now says are improper.

A spokeswoman for Sen. Ted Kennedy, D-Mass., said he was looking forward to the results of Higgins' investigation.

"Taxpayers and students deserve to know just how much money was wasted on this scheme," she said.

A spokeswoman for Higgins said that office policy prohibited her from discussing ongoing investigations.

In January, the department belatedly closed the guaranteed-return loophole. A department whistle-blower had alerted his superiors to the problem in 2003, but they reportedly chose to ignore it and reassigned him to another position.

Do you have a tip for Brian Ross and the Investigative Team?