College Loan Consolidation, Federal Loan Consolidation, Private Loan Consolidation, Student Loan Consolidation

America's Top Student Loan Provider

Taxpayers Pick Up the Tab
by Mary Waldron
On Friday, September 29, 2006, the U.S. Department of Education issued an audit citing the National Education Loan Network (Nelnet)'s alleged wrongful use of tax-exempt bonds to profit from high-interest payments made by the U.S. government. According to the audit, Nelnet has collected $278 million in federal subsidy payments, in addition to $882 million it wrongly charged the U.S. government. Nelnet has disputed these findings but insists it will "work with the department to resolve them."

So how has this student loan lender managed to cash in so enormously? By abusing a loophole in federal law that was intended to be closed in 1993. This loophole originated from a student loan program that allowed lenders to finance loans using non-taxable bonds issued before October of 1993 and thereby acquire government-subsidized interest rates of 9.5 percent. Although borrowers still paid a low rate of 3.37 percent, loans processed with these bonds were guaranteed interest rates of 9.5 percent, which left a 6.13-percent margin of pure profit for lenders and a hefty bill for U.S. taxpayers. Despite the government's attempt to block the use of tax-exempt bonds through the Higher Education Reconciliation Act, some lenders still found ways to reuse the pre-1993 loan funds.

In order to ensure their success rate, Nelnet deliberately expanded its supply of loans qualifying for higher interest rates or "special allowances" through "Project 950." According to the audit, "Nelnet used a series of transactions to increase the amount of loans ostensibly funded by tax-exempt obligations from approximately $551 million" in 2003 to $3.66 billion in 2004. The loophole was abused when the lender moved loans in and out of non-taxable trust estates, sometimes over the course of a single day, in order to approve them at the 9.5-percent rate. Even if a bond only funded a loan temporarily, the 9.5-percent rate was set in place for the life of the loan.

The audit also highlights correspondence between the Department of Education and Nelnet concerning approval to implement the procedures in question. Although Nelnet claims it was under the impression that it had "gained approval" from the Department of Education, the audit states that Nelnet "did not identify the eligible source of funds that would be used to purchase and qualify loans for the 9.5-percent floor, did not state directly that the process would be repeated many times, and did not state that the process would result in a substantial increase in the amount of loans billed under the 9.5-percent floor."

The Institute for College Access and Success (TICAS), a nonprofit watchdog group, has attempted to call the government's attention to this injustice for years. In 2004, it issued a report entitled "Money for Nothing," which stated that federal officials were fully aware of the ongoing abuses of the loophole. One of the report's writers, Robert Shireman, said, "The regulators are holding the door open while these companies raid the U.S. Treasury. The Secretary of Education had the authority to end this exploitation of taxpayers two years ago, and he has the authority today. We are calling on him to take immediate action and to seek the return of the funds already paid."


Article Title : Taxpayers Pick Up the Tab
Comment not found for this article.

Share this story:
  • BlinkList
  • blogmarks
  • Digg
  • Facebook
  • Google
  • Sphinn
  • MySpace
  • NewsVine
  • Simpy
  • StumbleUpon
  • Technorati
  • E-mail this story to a friend!
  • Print this article!
  • Faves
  • Furl
  • Netvouz
  • Slashdot
  • Spurl
  • Yahoo! Buzz

EdFed introduces… Awareness… Learnal
At, EdFed, we proudly introduce 'articles on student loans' and 'Learnal - the journal to learn from', our free newsletter on student loan management, which is sure to keep you informed of the latest events and happenings in the student loan market. To receive your copy of the above just use the RSS feed below and add this to your "My Yahoo", blogs, newstickers, and other similar channels accepting distributable content.
Click here to sign up for our Weekly Newswire now!

How EdFed Helped others!
Trust me I have called many different consolidation companies and none of them compare to EdFeds great Customer Service. They are defiantly on top of things. They were the seventh call and out of all the other people I had previously spoken with they were the only ones to help me with all my questions and concerns. They made me feel comfortable about the consolidation process and my decision to choose them.
- Kenneth S.  Denver, CO
* Your Name: * Your E-mail Address:

We respect your privacy.
* Your Friend's name: * Your Friend's E-mail address:
Include a Message:
+ Privacy Policy

Student Loan Consolidation Info - How to Choose the Right Loan Company

This column is sponsored by Granted, America's top job search engine. The Career Resources column is presented by Granted, America's leading job search engine dedicated to getting people jobs.

Education is one of the most basic right of any human, but with the increase in prices and the costs involved in education this has made these rights turn into a privilege which very few can enjoy. Any normal person today in the whole of United States has to take an education loan at one point of time to pay for their education fees.

read more
Schools Will No Longer Receive Paper FAFSA Forms
(September 20, 2007)

news desk
Stafford Loan Payment Calculator
PLUS Loan Payment Calculator
Loan Consolidation Payment Calculator
Glossary of Terms
Loan Comparison Chart
Scholarship Search
The only requirements for consolidation are that you have at least $7,500 in eligible loans, are out of school, have not yet consolidated, and are not in default with your current lenders—there are no credit checks.
US School Directory
Comprehensive List of Schools at which EdFed Assists Students.
EdFed is a FFELP lender with lender identification number 834241.
© Copyright 2017 EdFed. All Rights Reserved.

Home · About Us · Contact Us · News · Sitemap
Career Advice · Tell a Friend · Privacy Policy · Resume Service
Resume Distribution Service · Post Resume · Job Search Course
Sign up for the latest news on student loans.
Email Address:
+ Most Recent Newsletter
+ Newsletter Archives