A Tale of Inconsistency

Secretary Spellings is hoping that her "forgive and forget" decision on the Nelnet overpayment will find acceptance and move the issue out of the spotlight. Dont bet on it. The 9.5 loan scandal and the Secretary of Educations decision is tailor-made for Congressional oversight. Two key questions: (1) Does existing law require the Department of Education to do anything in regards to improper payments? And (2) is Spellings "forgive and forget" decision consistent with past Department of Education action on overpayments?

Heres what we uncovered: (1) Yes, the Department of Education has legal obligations stemming from the $278 million in overpayments. The Improper Payments Information Act (IPIA) of 2002 requires all federal agencies to review their programs and identify improper payments. Then, they must report on any significant improper payments, or those that exceed both $10 million annually and 2.5 percent of program payments.

The Inspector General estimated that Nelnet received $278 in improper payments over approximately two years, from March 31, 2003 through June 30, 2005. This would be an annual overpayment of about $139 million, which accounts for 11.5% of the $1.2 billion in special allowance payments for FY 2004, and 3.3% of the $4.2 billion in special allowance payments for FY 2005. So under IPIA, the improper payments to Nelnet were significant, and thus require a report.

Higher Ed Watch is looking forward to the Department of Educations next IPIA accountability report, which is due to Congress by March 31. Heres a sample of what we can expect from the Department, as required under law:

• A discussion of the causes of the erroneous payments identified, actions taken to correct those causes, and results of the actions taken to address those causes.
• A discussion of the amount of actual erroneous payments the agency expects to recover and how it will go about recovering them.
• A description of the steps (including time line) the agency has taken and plans to take to ensure that agency managers (including the agency head) are held accountable for reducing and recovering erroneous payments.

As to our next inquiry: (2) No, the Nelnet settlement is not consistent with the Department of Educations response to overpayments in other programs. For example, take overpayments made to school districts through the Impact Aid Program, the $1.2 billion stream of payments to local school district to compensate them for non-taxable federal property (e.g. military bases, Indian reservations, and public housing). Because of complicated applications and timing issues, school districts sometimes receive too much Impact Aid funding. The amounts of these overpayments are minimal compared to Nelnets $278 million, typically in the hundreds of thousands.

The Secretary does have the authority to issue forgiveness of these overpayments. The Department of Education, however, pursues school districts for small Impact Aid overpaymentsa choice totally at odds with Spellings decision not to pursue some $278 million in overpayments to a large, for-profit corporation like Nelnet (who also just happens to be the number one contributor to the National Republican Campaign Committee). School districts either have to refund Impact Aid overpayments to the Department or get Congress to include a specific Impact Aid forgiveness clause for the district in legislation.

The Frazer School District in Montana, for example, (210 total students and a 43% poverty rate) had to petition Congress for forgiveness of a $350,000 Impact Aid overpayment. Their successful effort was included in a committee report to the FY 2002 Appropriations Act for the Departments of Labor, Health and Human Services, Education, and Related Agencies:

In FY 1998, two school districts in Texas and one in New Jersey appealed to Congress for overpayment forgiveness, and the House Appropriations Committee had to include their specific request in its committee report:

These are three of the neediest school districts in the Impact Aid program and, if compelled to make repayment to the Department, would be placed under a tremendous hardship. The Committee requests that the Department review its actions with regard to supplemental payments made to the Killeen Independent School District, the Copperas Cove Independent School District (Texas), and the North Hanover Township public schools (New Jersey).

Seems like a whole lot of trouble for a few small school districts. And seems like not enough trouble for Nelnets much larger (and likely intentional) "mistake."