Student Lenders pay $57 million in Whistleblower settlement


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A total of $57 million in settlements are being paid out by four firms that specialize in student loans. The whistleblower lawsuit stems from allegations that the lenders in question misused and cheated a federal loan subsidy program by inflating the interest rates. While the Justice Department chose not to intervene the case was filed in the Eastern District of Virginia.

Student Loan Finance Corp. and its subsidiary Education Loans Inc.
The defendants in the qui tam suit are Nelnet Inc., which paid the lions share of the settlement at $47 million; Panhandle Plains Higher Education Authority; Brazos Higher Education Authority and Southwest Student Services Corp., a subsidiary of Sallie Mae the quasi-governmental lender. A New York Times article notes that attempts to stop the misuse of the subsidy date back to the year 2000.

The whistleblower has been identified as Jonathan Oberg, a former researcher for the Education Department who retired from the agency in 2005. He was represented in the suit by Michael Sturm of Wiley Rein LLP. For his courage in standing up to the defendants Mr. Oberg will receive $16.65 million from the settlement.

The qui tam case began because Mr. Oberg was not satisfied with an arrangement that the Education Department reached with Nelnet Inc. The most noticeable problem became apparent in 2004. That year Nelnet implemented a new accounting system that allowed the company to claim $3.66 billion worth of loans giving them a sizable subsidy. The previous year the lender had only claimed $551 million in loans. Oberg was responsible for leading the Education Department to reclaim $287 million from Nelnet, but he felt that wasn’t enough to cover such a gross infraction.

That feeling of dissatisfaction lead to a qui tam suit filed against a total of ten student lenders. After the initial settlement talks ordered by Magistrate Judge John F. Anderson the trial was canceled because of the agreements made. Shortly after that a fifth lender, Student Loan Finance Corp. and its subsidiary Education Loans Inc., received a final judgment to pay the Justice Department $2.5 million with $500,000 going to Mr. Oberg.



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