Nelnet Feeling Pressure From IG Over Alleged Improper Billing

Are there new risks to investors of student loan giant, Nelnet? The for-profit lender filed an updated statement with the Securities and Exchange Commission (SEC) on Thursday, September 20th -- two days after a New America Foundation event focused on Nelnets manipulation of the federal student loan system.

Nelnets SEC statement suggests that the U.S. Department of Education is about to recall hundreds of millions of dollars in taxpayer subsidy payments to the company and halt future expected taxpayer subsidy payments totaling more than $1.3 billion for student loans that Nelnet has claimed are entitled to a 9.5% rate of return. The 9.5% guaranteed rate of return was supposed to phase out beginning in 1993, but in 2003, Nelnet pursued a scheme to grow radically the amount of claimed 9.5% loans. Nelnet's method has been criticized in multiple outlets and harshly.

In Thursday's SEC-required filing, Nelnet publicly stated,

"Before deciding whether to purchaseyou should pay special attention to the following. [T]he Office of Inspector General of the Department of Education (the IG) has been conducting an audit of Nelnets portfolio of student loans receiving 9.5% special allowance payments. The draft audit report recommends that, with respect to the loans in question, Nelnet be required to return overpayments the IG contends were paid to Nelnet in connection with the 9.5% Floor and that Nelnet be instructed to exclude such loans from its claims in the future for payment under the 9.5% Floor.While Nelnet cannot predict the final outcome of the audit or of any subsequent review by the Department of Education or of any court proceedings following any action by the Department of Education, Nelnet continues to believe it has billed for the special allowance payments in accordance with applicable laws, regulations and Department of Education guidance."

This is the first time Nelnet has disclosed so much about the IG draft audit and the first time it has hinted by talking about court proceedings that it may no longer be confident that the Secretary of Education will overrule the IGs audit, as was done in an earlier case involving a not-for-profit New Mexico loan provider. Were just speculating, but maybe the Secretarys office already has decided how it wants to come down on the IG report and just maybe Nelnet knows the answer.