Four student loan lenders will pay more than $57 million to settle complaints they have been abusing the loan subsidy system and cheating the government out of millions of dollars, the Department of Justice last week.
The companies allegedly extracted the money using a federal student loan program that was meant to be phased out in 1993, according to the DOJ. The subsidy program guaranteed 9.5% return on certain student loans.
Nelnet Inc., the company that paid out the most in the settlement, had argued an initial decision by the Department of Education, which let the company off the hook without requesting damage compensation, showed there was no liability, according to a brief by the company’s lawyer.
Nelnet argued the original complaint was too broad to construe a specific fraud claim against just one company and that the complaint did not provide enough details. Nelnet Inc. and Nelnet Educational Loan Funding Inc. have ended up paying the lion’s share of the settlement: $47 million to the U.S. government.
Three other companies, Southwest Student Services Corp., Brazos Higher Education Authority and Brazos Higher Education Service Corp., and Panhandle Plains Higher Education Authority and Panhandle Plains Management and Servicing Corp. paid $10.75 million.
Jon Oberg, a former U.S. Department of Education researcher, filed the original complaint in 2007 alleging the four loan companies had bilked the government out of $1 billion.
"Whistleblowers like Dr. Oberg are critical to our efforts to recover taxpayer money lost to waste, fraud and abuse," Tony West, an assistant attorney general in the Justice Department, said in a statement.
The complaint alleged the loan company used a process called "dipping," which multiplies the number of loans eligible for the subsidy.