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Student Loan Company
Recently, the United States government made an agreement with a student loan company to allow it to keep 278 million dollars in subsidies that the United States Education Department had found improper.
Under this agreement, the department will stop paying money to this loan company until an audit determines if the company is really eligible for the money or not.
The name of this student loan company is Nelnet. The inspector general's office of the United States said that the accounting practices of this student loan company could have led to the overpayment.
The Under Secretary of Education Sara Martinez Tucker said that it would not recover past payments from a student loan company since this might drive smaller student loan companies out of business.
The current Democrats in Congress did not like this agreement with this student loan company. Congress had just approved a bill to lower interest rates on some new federal student loans and lessen lenders' guaranteed profits. Democrats think that the administration should have recovered the money from this student loan company. The administration is rewarding them for their greed.
The audit by the inspector general had found that this student loan company had misused a subsidy program that had an interest rate of 9.5 percent. This guarantee was made in the 1980s, when interest rates were kept artificially high; to keep lending companies in the student loan business.
Congress had to rein in this program for a student loan company in 1993. The loans increased dramatically anyway as lending companies sought ways to increase their portfolios of loans that they said fit the guarantee.
The office of the Education Department inspector said this student loan company, when interested rates were low, enlarged its portfolio of loans from 551 million dollars in 2003 to 3.7 billion dollars in 2004. The report found that this student loan company exploited the 9.5 percent interest rate to make more money. When it added more and more borrowers to the program, it could make more and more money from the interest.
In 2006, this student loan company had 3 billion dollars in loans it considered part of the 9.5 percent payments. This student loan company is not the only lending company being accused of doing this. The Education Department said that it would stop paying claims from other lending companies until an audit is done. A non-profit college loan company in New Mexico called New Mexico Education did the same thing as Nelnet in 2005.
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