Education Dept. Memo in 2003 Warned of Inflated Loan Subsidies

May 07, 2007

Jon H. Oberg, a former Education Department researcher, warned his superiors in 2003 about a loophole in federal student-aid law that was allowing some of the nation’s largest lenders to reap windfall profits from the government by receiving guaranteed subsidies far above market-based interest rates.

But The New York Times reported that Mr. Oberg’s supervisor told him to work on something else. The department “does not have an intramural program of research on postsecondary education finance,” the supervisor, Grover Whitehurst, wrote in a November 2003 e-mail message to Mr. Oberg, who was soon to retire. “In the 18 months you have remaining, I will expect your time and talents to be directed primarily to our business of conceptualizing, completing, and monitoring research grants,” Mr. Whitehurst wrote.

The overpayments continued until the Education Department announced in January of this year that it would stop paying lenders at the highest subsidy rate until they could prove, via audit, that they qualified for it. —Jeffrey Selingo