Sallie Mae overbilled the Education Department for $22.3-million in student-loan subsidies and should be required to return the money to the department, the agency’s inspector general wrote in an audit report issued on Monday.
According to the audit, the overcharges occurred from October 2003 to September 2006. Sallie Mae, the nation’s largest provider of student loans, is disputing the finding.
At issue are payments the Education Department makes to lenders that hold student loans financed with tax-exempt bonds.
In the 1980s, Congress guaranteed nonprofit lenders a 9.5-percent return on such loans to help protect them at a time when the economy was sour and the cost of making student loans was soaring. Congress eliminated that guarantee in 1993 but grandfathered in loans made with bonds issued before that date.
Most nonprofit lenders, along with some large for-profit loan companies that had purchased nonprofit agencies, maintained until recently, however, that government regulations allowed them to continue to receive the 9.5-percent return if they used the returns on loans backed by the bonds to make new loans, a practice known as recycling.
The department suspended all payments at the 9.5-percent rate more than two years ago, saying it would pay the higher rate only if the lenders could prove, via an audit, that they qualified for it. Since then 15 lenders have performed audits, and at least seven have been approved for the higher rate.
In its response to the the inspector general’s audit report, Sallie Mae said it was eligible for the 9.5-percent subsidy rate because some of the bonds used to make the loans did not mature until 2005.
The Sallie Mae audit comes just over two months after the inspector general released an audit finding that the Kentucky Higher Education Student Loan Corporation overbilled the department by at least $9-million.
Other lenders have faced similar audits. In 2005 the inspector general accused the New Mexico Educational Assistance Foundation of overcharging the government by as much as $36-million. In 2006 it found that Nelnet had improperly received $278-million in subsidies. And in 2007 it found that the Pennsylvania Higher Education Assistance Agency had received at least $33-million in excess subsidies. In the end, only the Pennsylvania agency was ordered to return any of the money.
