Weekly Roundup

PHEAA May Pay $15 Million For 9.5% Loan Payments

The Department of Education has asked the Pennsylvania Higher Education Assistance Agency (PHEAA), one of the country's largest nonprofit student loan providers, to repay as much as $15 million in federal payments it improperly obtained by exploiting a subsidy program that guaranteed loan providers a 9.5 percent rate of return on government-backed student loans. The request comes two months after an audit by the Department’s own Inspector General found that PHEAA had improperly obtained $34 million in subsidy payments. The Department rejected these findings and suggested the $15 million price tag but is ultimately letting PHEAA decide how much it has to repay. A PHEAA spokesman suggested to The New York Times that the lender may end up with "zero liability." PHEAA is the first party in the 9.5 scandal to be held financialy accountable for its actions. In 2006 another lender, Nelnet, was caught with $278 in improperly obtained Department funds.

Economic Woes Hit Sallie Mae, Nelnet

Tightening credit markets and the slowing economy appear to be spreading into the student loan industry, as two major lenders announced recently that they will be cutting jobs and shying away from riskier loans. Last Friday, Virginia-based Sallie Mae said it would be trimming 350 jobs across the country, roughly 3 percent of its workforce. Nelnet, located in Nebraska, announced it would cut 300 jobs, about 10 percent of its workforce — its second round of major layoffs since September. Both companies also announced changes to the loan services they would be offering. Sallie Mae said it would be more selective about offering private loans to students with low credit scores and those enrolled at schools with low graduation rates. Nelnet, meanwhile, announced it would stop offering loan consolidation services and would be more selective with the loans it offered.

University of Phoenix Found Guilty of Securities Fraud, Must Pay $280 Million

A federal jury handed shareholders a major victory on Wednesday over the University of Phoenix, the largest for-profit university in the country. After only two days of deliberations, the jury found that the Apollo Group, the university's parent company, was guilty of securities fraud for withholding crucial information from investors and ordered it to pay approximately $280-million to the shareholders who had sued. In 2004, the company repeatedly failed to disclose in its Security and Exchange Commission filings and in its conference calls with financial analysts the existence of a U.S. Department of Education review that had blasted its student recruiting practices. That report, which found that the university had violated a federal law that bans colleges from compensating admissions officers on the basis of enrollments, became public only after the university reluctantly agreed to a $9.8-million settlement with the Department in which it denied any wrongdoing. The report's findings are also at the center of a separate False Claims Act lawsuit that has been brought against the university by two former admissions officers.

New York Unveils Ambitious Plan to Boost Prestige of Public Colleges

New York needs to significantly increase spending on its state college systems and hire thousands of new professors if it hopes to compete with other prestigious public universities, according to a

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Boehner Paid $110k in Legal Fees as Part of Insider Trading Investigation

The office of House Minority Leader John Boehner (R-Ohio) appears to be a target in an ongoing investigation by the Securities and Exchange Commission into allegations that Al Lord, the executive…

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Dodd Bill Proposes to Make Private Loans Dischargeable in Bankruptcy

Democratic presidential hopeful Sen. Chris Dodd (D-CT) announced last week that he plans to introduce legislation that would allow private student loan borrowers who have taken on unmanageable…

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Nelnet Audit Receives Top Prize from the Council on Integrity and Efficiency

The Inspector General's Office at the Department of Education has received the top award the government gives to federal inspector generals for its investigation into the student loan company…

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House Education Committee Unanimously Passes Bill to Reauthorize the Higher Education Act

The House Education Committee unanimously approved legislation on Thursday that would reauthorize the Higher Education Act for five years. The College Opportunity and Affordability Act (H.R.…

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More Questionable Spending Uncovered at PHEAA

Gummy brains, brass clocks, and peppermint candies were among the promotional giveaways the Pennsylvania Higher Education Assistance Agency (PHEAA) spent $2.2 million on over a five-year period, the Patriot-News of…

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Ed Dept. Asks for Details on Lender Relationships From 55 Schools; Releases Final Regulations

The U.S. Education Department announced on Wednesday that it is stepping up its investigation of whether some colleges have violated federal law by

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