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NEWS SCOOP on Student Loan Waste: White House Involved

Higher Ed Watch has learned that the White House has sought a high level briefing from a Department of Education appointee on a multi-billion dollar showdown between the Department of Education's Inspector General and the Secretary of Education over student loan waste. Perhaps this man took notice of the brewing fight and weighed in with the White House.

Higher Ed Watch reported last week that the IG has prepared a critical draft audit of student loan giant, Nelnet, that appears to call for the return of hundreds of millions of dollars in student loan subsidy payments to the for-profit company. Further, it appears the draft audit will call for the stopping of what financial analysts estimate is $1.3 billion in future taxpayer payments to the company. All in all, just to Nelnet, over $1.6 billion in taxpayer subsidy payments are at stake.

Theresa Shaw, Department of Education

The day news of the IG's draft audit of Nelnet leaked, Theresa (Terri) Shaw, the chief operating officer of the Departments Office of Federal Student Aid pictured left, was called to the White House to explain things to the Domestic Policy Council. Now it's unlikely that Shaw, a former Sallie Mae Vice President, said the Department of Education had done anything untoward. After all, she heads the Office that shelled out hundreds of millions of dollars to Nelnet and Sallie Mae without raising an eyebrow, and in the past she's reported that she's done a great job.

But maybe, just maybe a multi-billion dollar student loan scandal is not what the White House wants in an election year. Or maybe the White House wants some of Nelnet's ill-gotten gains back to finance pet ideas to be included in the 2007 budget. Or maybe the White House has in mind brokering a potential deal between the IG and Secretary of Education. Over $300 million in past payments and $1.3 billion in future payments adds up to a sizable offset to pay for recommendations of say the Secretary of Education's Commission on the Future of Higher Education, or alternatively, an expansion of the No Child Left Behind Act to high schools.

Regardless, others will have their say. Democratic and Republican Congressional representatives in seven states with lenders similiarly implicated in the so-called 9.5% student loan scandal will want the Department of Education to go easy on Nelnet. And House Majority Leader John Boehner will doubtless have his say. Nelnet, its PAC and executives, have been big contributors to Boehner, his friends, and election committees as well as to President Bush. In fact, as Chairman of the House authorizing committee for higher education, Boehner argued that the Department should not to stop the 9.5% subsidy payments immediately. He preferred to deal with the issue in a comprehensive (later) overhaul of all higher education law. Eventually though, the media pressure got too hot and Congress cut off the 9.5% taxpayer subsidy (again), but only after allowing hundreds of millions of dollars in subsidy payments to gush from the U.S. Treasury to the student loan industry.

The IG seems to want the money back and to turn off the spigot on future taxpayer payments to Nelnet. Will he be stopped?