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January 15, 2010 7:20 PM Lender Says Loan Scheme Was Approved by Bush Administration

By Daniel Luzer

Nelnet, the Nebraska-based student loan company, recently subpoenaed records from the U.S. Education Department. According to the New America Foundation’s Higher Ed Watch blog:

Nelnet recently had a subpoena issued to the U.S. Department of Education for documents it believes will definitively show that the agency’s former leaders signed off on the company’s plan to aggressively grow its 9.5 percent student loan holdings. Nelnet took this action shortly after a federal court judge ruled in favor of allowing a False Claims lawsuit filed by Jon Oberg, the former Education Department researcher who uncovered the 9.5 student loan scandal, to proceed against the company and five other lenders.

Nelnet alleges that the Bush administration knowingly allowed the company to exploit a federal loophole it used to make billions in profits.

In 2006 the U.S. Education Department’s inspector drew attention to the huge profits the company made over the course of a decade, arguing that Nelnet defrauded the government, and by extension American taxpayers, though its scheme. Former Education Secretary Margaret Spellings did not require the company to pay back its profits, though her department did determine the company acted improperly. Stephen Burd explains the history of the scandal here.

Nelnet (National Education Loan Network) was founded in 1978 as the UNIPAC Loan Service Corporation, a non-profit that serviced Nebraska student loans. The company became Nelnet in the 1990s when the organization became a for-profit company. Nelnet holds around $25 billion in student loans, about a third of all federally subsidized U.S. student loans.

Both Nelnet and the Union Bank & Trust Company, one of the largest privately-held banks in Nebraska, are owned by the Dunlap family.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer