Fiscal Hawks Press Administration on Student Loan Waste

A small group of fiscal hawks in Congress led by Congressmen Jeff Flake (R-AZ) and Tom Petri (R-WI) have called on Education Secretary Margaret Spellings to revisit her decision to forgive approximately $300 million in taxpayer subsidy overpayments to college loan provider Nelnet. Read their letter to Spellings.

Nelnet has been harshly criticized for its exploitation of a subsidy in the federal student loan program guaranteeing lenders a 9.5 percent return on loans. Congress phased out the special subsidy beginning in 1993, but through accounting gimmickry, Nelnet increased its claims nine fold beginning in 2002.

Last fall, the Education Department’s Inspector General called Nelnet’s ongoing claims improper and for Spellings to recoup past payments. Three months later, Under Secretary of Education Sara Martinez Tucker announced the Administration agreed with Inspector General’s findings, but would only suspend future payments.

Congressional leaders, including Education Committee Chairmen Senator Edward M. Kennedy (D-MA) and Congressman George Miller (D-CA), expressed outrage at the Bush Administration’s decision to forgive past overpayments. (Disclosure: Higher Ed Watch staff used to work for Kennedy) Today, Republican fiscal hawks, including Reps. Marsha Blackburn (R-TN), Ron Paul (R-TX), Scott Garrett (R-NJ), Bob Inglis (R-SC), and Vern Buchanan (R-FL), added their voices in opposition.

“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.”

The call for payment recovery comes on top of House of Representatives action in January to cut student loan bank subsidy rates and President Bush’s recent budget proposal to slash them even further.

“[The Nelnet case] is an unfortunate example of the waste, fraud, and abuse that can occur under the Federal Family Education Loan program. For many years, I have been outspoken about the amount of taxpayer dollars wasted on excessive subsidies to lenders,” said Petri.

In January, Chairman Miller promised a Congressional oversight hearing. Education Department officials are slated to testify before two separate Congressional committees next week.