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Department of Education Accused of Fleecing Taxpayers

Oct 27, 2007

Oversights at the Department of Education allowed lenders to improperly collect more than $600 million of student loan payments. In a recent interview with Education Secretary Margaret Spellings, she admitted the Department is to blame, but also admits that there are no plans to recoup the money for taxpayers.

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Lender Period Overpayment
NelNet 2003-2005 $278 million
Other Lenders 2003-2006 $330 million

The existence of questionable student loan payments to lenders by the Government was revealed last year, but until now, there has never been an estimate of how much was overpaid.

And if the Department of Education gets their way, there will never be an estimate. Secretary of Education Margaret Spellings told the Washington Post that while the Department had some responsibility for the overpayments, there were no plans pursue a full accounting of the cost to taxpayers.

Although no 'official' estimate is in the works, the Education Department's Inspector General has already identified $278 million in overpayments to mega lender NelNet.

The Washington Post also did an analysis of their own and found that more than $330 million was paid to nine lenders (not counting NelNet) between 2003 and 2006, bringing the total to more than $600 million.

The lenders were able to collect the additional subsidies thanks to an old program started in 1980, which guaranteed a 9.5 percent return to lenders that issued loans financed by tax-exempt bonds. This was fair for lenders when interest rates were high, but when rates dropped, the program became a way for lenders to improperly collect subsidies.

The Government Accountability Office issued a warning three years ago that failing to eliminate the loophole could allow lenders to collect billions in unnecessary subsidies from the government. The warning was essentially ignored until January of this year when Spellings finally halted the possibility of future payments.

The problem is that the damage has already been down. Hundreds of millions of dollars in taxpayer funds have been squandered due to a supposed oversight.

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Earlier this week, Senator and Presidential Candidate Chris Dodd called for Secretary Spellings to seek reimbursement from the companies who were overpaid. Dodd referred to the Department's lack of accountability as 'unconscionable.'

'It's completely unacceptable for Secretary Spellings to acknowledge the fact that these overpayments were happening - apparently for some time - and yet refuse to seek a full accounting of these improper payments or a reimbursement,' said Dodd in a press release. 'This is exactly why the American people are frustrated; their government is no longer working. '

Other Department of Education Scandals

This isn't the first accusation that the Department of Education has wasted taxpayer money. In 2005, it was revealed that the Department illegally entered a secret contract with TV personality Armstrong Williams in 2003 to promote the No Child Left Behind Act. The Department gave Williams a total of $240,000 in taxpayer funds.

There was also the Matteo Fontana scandal earlier this year. Fontana, a top Department of Education official, was in charge of overseeing guarantee agencies and lenders, and was found to be holding more than $100,000 of insider stock in a company which provides student loans. The Department put Fontana on paid administrative leave when the revelations were made. According to RedState.com, Fontana is still employed at the Department and still on paid leave seven months later.

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