Four student loan lenders are paying more than $57 million to settle complaints they have been cheating the government out of millions of dollars by abusing the loan subsidy system, the Department of Justice said Wednesday.
Former U.S. Department of Education researcher Jon Oberg filed a complaint in 2007 alleging four student loan companies had bilked the government out of $1 billion.
“Whistleblowers like Dr. Oberg are critical to our efforts to recover taxpayer money lost to waste, fraud and abuse,” said Tony West, an assistant attorney general in the Justice Department, in a statement.
The loan companies allegedly extracted the money using a federal student loan program that was meant to be phased out in 1993, according to the DOJ. The subsidy program guaranteed 9.5 percent return on certain student loans.
The complaint alleged the loan company used a process called “dipping,” which multiplies the number of loans eligible for the subsidy.
Nelnet Inc., the company which paid out the most in the settlement, had previously argued the Department of Education’s initial decision to let the company off the hook without requesting damage compensation showed “there was no liability here,” according to a brief by the company’s lawyer.
Nelnet also argued the original complaint was too broad to construe a specific fraud claim against just one company and that the complaint did not provide enough details.
Nevertheless, Nelnet Inc. and Nelnet Educational Loan Funding Inc. has ended up paying the lion’s share of the settlement: $47 million to the U.S. government.
The other three companies, Southwest Student Services Corp., Brazos Higher Education Authority and Brazos Higher Education Service Corp., and Panhandle Plains Higher Education Authority and Panhandle Plains Management and Servicing Corp. paid $10.75 million.
Oberg will receive $16.65 million from the settlements.
“I have always been a strong supporter of the mission of the Department of Education. However, particularly in these difficult times, it is critical for both taxpayers and students that federal funds be used to support students in need, not to enrich lenders unlawfully,” Oberg said in a statement.
