Former Education Department Researcher Sues for Return of Lender Subsidies

August 31, 2009

A former Education Department researcher has filed a lawsuit seeking the return of $1-billion in excess student-loan subsidies to the federal government.

Jon H. Oberg, who retired in 2005, says he warned his superiors in 2003 about a loophole that was allowing some of the nation's largest lenders to reap windfall profits from the federal government, but was brushed off and told to work on other things.

The overpayments continued until the Education Department announced, in January 2007, that it would stop paying lenders at the highest subsidy rate until they could prove that they qualified for it.

The lawsuit, which Mr. Oberg filed in the U.S. District Court for the Eastern District of Virginia, takes aim at several student-loan companies, including Nelnet and Sallie Mae.

Earlier this month, the Education Department's inspector general issued an audit that found that Sallie Mae had overbilled the department for $22.3-million in student-loan subsidies. In 2007 the department allowed Nelnet to keep $278-million in excess subsidies, but cut off the overpayments.

The lenders have said that they were eligible to receive the subsidies and that government regulations allowed them to continue to receive the funds.