2008 Woodie Awards
Vote Absentee
Backlash on Nelnet subsidy dispute leads to pointing fingers
Kevin Zelaya
Issue date: 1/25/07 Section: News
- Page 1 of 1
Nelnet's $278 million in profits from the federal government could have been better spent on student accessibility to college, according to some University of Nebraska officials.
Those officials voiced their opinions after hearing about the settlement between Nelnet, the National Education Loan Network, and the U.S. Department of Education, allowing the Lincoln-based student loan provider to keep $278 million in disputed subsidy payments.
At issue is Nelnet's use of a loophole in federal law that allowed it to refinance old loans into new loans to receive an above-market 9.5 percent subsidy interest rate.
The settlement comes four months after an audit report from the Office of the Inspector General recommended that Nelnet be forced to repay the federal government for the improper payments it received.
Congress closed the loophole last February.
The University of Nebraska Board of Regents approved a partnership between the University of Nebraska-Lincoln and Nelnet in 2004 by a 6-2 vote.
Under the agreement, UNL was entitled to 6.05 percent of the profits from graduate and professional student loans purchased by Nelnet.
Nelnet has acknowledged that it used the loophole because competitors were doing it.
The charges leveled against Nelnet are a cause for concern, said Regent Charles Wilson of Lincoln.
Wilson said Congress was irresponsible for not closing the loophole in a timely fashion and felt that Nelnet abused the law.
"It is appalling when such a glaring fault was present in legislation and Congress didn't fix it," Wilson said. "I don't understand how it continued to exist."
Regent Chuck Hassebrook of Lyons said he thought Nelnet should have been forced to repay its profits and that the money would have been better spent on college accessibility.
Hassebrook said it is always bad to waste money, especially if it goes toward fattening the pockets of a private lender, like Nelnet.
"The federal government is not spending enough on the programs it has to benefit all students," Hassebrook said. "We're not meeting the needs of low and moderate income students."
Craig Munier, the chairman of the National Direct Student Loan Coalition and the director of UNL's Office of Scholarships and Financial Aid, said the federal government could save billions of dollars if all universities used federal direct loans instead of partnering with private lenders.
The federal government could save $4.5 billion in the first year if every university and college in the United States were in the Federal Direct Student Loan program, Munier said in a statement.
Wilson said he thought the difficulty of proving Nelnet violated the law in court forced the government to settle with the lender because a loophole within the law allowed for such profits.
"Lenders could say, 'The problem was with the law - I didn't break it,' " Wilson said.
Those officials voiced their opinions after hearing about the settlement between Nelnet, the National Education Loan Network, and the U.S. Department of Education, allowing the Lincoln-based student loan provider to keep $278 million in disputed subsidy payments.
At issue is Nelnet's use of a loophole in federal law that allowed it to refinance old loans into new loans to receive an above-market 9.5 percent subsidy interest rate.
The settlement comes four months after an audit report from the Office of the Inspector General recommended that Nelnet be forced to repay the federal government for the improper payments it received.
Congress closed the loophole last February.
The University of Nebraska Board of Regents approved a partnership between the University of Nebraska-Lincoln and Nelnet in 2004 by a 6-2 vote.
Under the agreement, UNL was entitled to 6.05 percent of the profits from graduate and professional student loans purchased by Nelnet.
Nelnet has acknowledged that it used the loophole because competitors were doing it.
The charges leveled against Nelnet are a cause for concern, said Regent Charles Wilson of Lincoln.
Wilson said Congress was irresponsible for not closing the loophole in a timely fashion and felt that Nelnet abused the law.
"It is appalling when such a glaring fault was present in legislation and Congress didn't fix it," Wilson said. "I don't understand how it continued to exist."
Regent Chuck Hassebrook of Lyons said he thought Nelnet should have been forced to repay its profits and that the money would have been better spent on college accessibility.
Hassebrook said it is always bad to waste money, especially if it goes toward fattening the pockets of a private lender, like Nelnet.
"The federal government is not spending enough on the programs it has to benefit all students," Hassebrook said. "We're not meeting the needs of low and moderate income students."
Craig Munier, the chairman of the National Direct Student Loan Coalition and the director of UNL's Office of Scholarships and Financial Aid, said the federal government could save billions of dollars if all universities used federal direct loans instead of partnering with private lenders.
The federal government could save $4.5 billion in the first year if every university and college in the United States were in the Federal Direct Student Loan program, Munier said in a statement.
Wilson said he thought the difficulty of proving Nelnet violated the law in court forced the government to settle with the lender because a loophole within the law allowed for such profits.
"Lenders could say, 'The problem was with the law - I didn't break it,' " Wilson said.
Be the first to comment on this story