Senators want more student loan accounting

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By staff and wire reports

Six Senate Democrats, including two presidential candidates, called for a complet accounting by the Bush administration of overpayments by the U.S. Education Department to college student loan firms, including Nelnet of Lincoln, under a loan program that guaranteed the firms a 9.5 percent interest rate.

The overpayments may have totaled hundreds of millions of dollars from 2003 to 2006 and taxpayers have a right to know the actual amount, the senators said in a letter sent to the department's inspector general, according to news reports by Reuters and statements from the senators.

"Taxpayers also deserve information on which lenders were involved, what methods they used to claim these subsidies unfairly, and why the department allowed the inappropriate subsidies to be paid," the senators said in a statement.

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The letter requesting the investigation was signed by Sens. Barack Obama of Illinois, Hillary Clinton of New York, Patty Murray of Washington, Edward Kennedy of Massachusetts, Byron Dorgan of North Dakota and Barbara Mikulski of Maryland.

The request adds to inquiries into student loans and the Education Department. In addition to the loan programs, student loan marketing practices have been under scrutiny for months since disclosure of kickbacks and conflicts of interest embarrassed the $85 billion industry.

The Justice Department was looking into an Education Department audit of Nelnet, the company has acknowledged.

Nelnet earlier this year agreed to a settlement with the Education Department over the audit by the department's inspector general of a portfolio of loans that got payments under the 9.5 percent loan program. 

Under the settlement, Nelnet was allowed to keep $278 million of the payments it received before July 1, 2006, while foregoing subsequent claims.

The audit found an increase in special allowance payments to Nelnet was based on what the inspector general determined to be ineligible loans. Nelnet said it disagreed with the inspector general and believed it was owed the payments by the government.

The senators said the Nelnet probe indicates other investigations are needed.

"Dozens of lenders have received 9.5 percent special allowance payments during the 27-year history of the subsidy, so it is likely that the sum total of improper payments is much higher," the letter said.

The Washington Post recently published a story, also published in the Journal Star, that disclosed other companies that received the payments.  

An Education Department spokeswoman declined to comment to Reuters.

Defending Nelnet’s positioin, spokesman Ben Kiser said the Department of Education

“published guidance that allowed – indeed, required – new loans to qualify for the 9.5% payments as long as the loans could be traced to a tax exempt bond.”

The Department implemented this guidance consistently until September 2006, he said.

“Nelnet repeatedly advised the Department about how we intended to fund and bill loans for the 9.5% payments, and recommended to Congress that it end the 9.5% payments for the entire industry,” Kiser said. 

Nelnet adjusted earnings exceed expectations

Separately, Nelnet reported a third quarter loss on Friday.   But adjusted for special items, its earnings beat Wall Street expectations, thanks to the growth of its fee-based businesses, separate from student lending.

Net interest income declined to $64.4 million from $72.3 million a year ago.

In September, the company announced plans to lower costs because of the the enactment of the College Cost Reduction and Access Act of 2007.  This legislation makes severe cuts to the Federal Family Education Loan Program, and consequences for participants in the loan program, including Nelnet,

In the third quarter of 2007, Nelnet recorded $15.0 million, or $9.3 million after tax, of restructuring charges and $55.2 million, or $34.2 million after tax, of charges as a result of the legislation.

Meanwhile, Nelnet’s fee-based revenue made up 54 percent of the quarter's total revenue, the company said.

Those include loan and guarantee servicing, list management, direct marketing, tuition payment plan and enrollment services businesses.

Student loan assets increased 16 percent to $26.6 billion.

Nelnet subsidiary sells building on 48th Street

The company also announced its subsidiary, First National Life of the USA, entered into an  agreement to sell a building at 3600 S. 48th St., to Union Bank & Trust for $600,000.     First National Life now leases office space in that building to Union Bank for approximately $70,000 per year, Nelnet said in a federal filing.

Union Bank is a substantial shareholder of Nelnet and is controlled by Michael S. Dunlap, chairman and CEO of Nelnet, and Dunlap’s sister, Angela L. Muhleisen, substantial shareholder of Nelnet.