Student loan providers are overcharging Uncle Sam through the use of packaged loans and the amounts are thought to be staggering, according to the Department of Education (DOE) Inspector General.
Last month, the DOE ignored a report from its inspector general that found a Pennsylvania lender had overcharged the government by $34 million for loan subsidy payments. That company, the Pennsylvania Higher Education Assistance Agency, a nonprofit lender known as PHEAA, was allowed to self-determine how much it over-charged Uncle Sam and said it was $15.1 million.
In 2006, Lincoln-based student lender Nelnet was found to have over-charged the government by $278 million on subsidy payments. That was never recovered.
The loophole which may be causing the over charges were uncovered in 2003 by Jon Oberg a former U.S. Education Department researcher. That loophole allowed lenders to package new loans and old loans to maximize the subsidies they receive from the government. In the 1980’s Congress set a 9.5% interest rate to give loan companies that financed loans with tax exempt bonds a guaranteed rate during an economic slowdown. After that Congress eliminated the 9.5 % loophole but lenders rushed to package new loans with old loans in order to receive the subsidy payments. This is what resulted in the massive over-charges.
Jeffrey Newman represents whistleblowers