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Kentucky Lender Received Millions in Excess Subsidies, Auditor Finds
By admin | May 29, 2009
Kentucky Lender Received Millions in Excess Subsidies, Auditor Finds
The Kentucky Higher Education Student Loan Corporation overbilled the U.S. Department of Education for loan subsidies and should return at least $9-million, the department’s inspector general wrote in an audit report issued today.
At issue are payments the Education Department makes to lenders that hold student loans financed with tax-exempt bonds.
In the 1980s, Congress guaranteed nonprofit lenders a 9.5-percent return on such loans to help protect them at a time when the economy was sour and the cost of making student loans was soaring. Congress eliminated that guarantee in 1993 but grandfathered in existing loans.
Most nonprofit lenders, along with some large for-profit loan companies that had purchased nonprofit agencies, maintained until recently, however, that government regulations allowed them to continue to receive the 9.5-percent return if they used the returns on loans backed by the bonds to make new loans, a practice known as recycling.
The department suspended all payments at the 9.5-percent rate more than two years ago, saying it would pay the higher rate only if the lenders could prove, via an audit, that they qualified for it. Since then 15 lenders have performed audits, and at least seven have been approved for the higher rate.
According to the Kentucky audit, the state lender overcharged the department by more than $9-million from 2001 to 2006 and may have overbilled by $79.5-million since then. The inspector general recommended that the Education Department require the lender to calculate the actual amount of improper subsidies it received during the five-year period. The audit also said the department should monitor and recover any excess subsidies paid since then.
In a letter of response, the Kentucky agency disputed most of the findings.
The agency is not the first to stand accused of overbilling the federal government. In 2005 the Education Department’s Office of Inspector General issued a report accusing the New Mexico Educational Assistance Foundation of overcharging the government by as much as $36-million. In 2006 it found that Nelnet had improperly received $278-million in subsidies. And in 2007 it found that the Pennsylvania Higher Education Assistance Agency had received at least $33-million in excess subsidies. In the end, only the Pennsylvania agency was ordered to return any of the money. —Kelly Field
Topics: Education |