Embattled PHEAA must return $15 million

January 25, 2008 3:08:17 PM PST
The federal government is asking Pennsylvania's student-loan agency to repay as much as $15 million that officials say it overcharged for loan subsidies. The U.S. Department of Education outlined its request in a letter to the Pennsylvania Higher Education Assistance Agency on Friday, two months after the department's inspector general released an audit of the PHEAA subsidies.

The audit determined that PHEAA was overpaid $35 million in federal subsidies between July 2003 and June 2006 - 13 percent of the more than $263 million it received during that period. But the department ultimately did not accept all the audit's findings, Patricia Trubia of the Federal Student Aid office wrote in her letter to PHEAA.

Federal regulations allow lenders to receive federal subsidies for student loans funded by tax-exempt bonds issued before Oct. 1, 1993. The department estimates that PHEAA overbilled the government $15 million between October 2004 and September 2006 for loans that were refinanced with taxable and ineligible tax-exempt bonds, Trubia wrote.

PHEAA has 30 days to respond to the letter, and spokesman Keith New said Friday the agency has not agreed how much money, if any, it should repay. PHEAA, however, has been negotiating the matter with the federal government as part of a separate Education Department review whose findings were released in 2006, New said.

"We've always said that there was nothing new (in the audit) and the department has confirmed that," New said. "We have steadfastly always followed department guidelines."

U.S. Rep. George Miller, D-Calif., who chairs the House Education and Labor Committee, said he hoped the enforcement was a sign the Education Department "is finally starting to take its role as the steward of our nation's federal student aid programs seriously."

The agency manages about $100 billion in loans issued by PHEAA and other lenders, including $47 billion in outstanding guaranteed loans.

Two similar federal audits have focused on how lenders have profited from the government's promise in the 1980s to guarantee a return of 9.5 percent on student loans financed by tax-exempt bonds. The government made that pledge at a time when interest rates were high, and it had to pay lenders the interest that was not covered by students.

When interest rates dropped, the practice sent billions of dollars in government payments to PHEAA and other lenders. Congress has more recently enacted legislation intended to phase out the subsidy.

An audit released in 2006 found that for-profit Nebraska student loan company Nelnet was improperly paid more than $278 million through the federal student aid program. Education Secretary Margaret Spellings said last year her agency would not seek to recover past overpayments under a settlement with Nelnet, which promised to end the practice.

The inspector general also found in 2005 that the New Mexico Educational Assistance Foundation improperly received more than $35 million in federal payments, but the department did not order the foundation to repay the money.


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