Friday, January 25, 2008

PHEAA: Now a National Embarrassment

From the Chronicles of Higher Education.

Washington — The Education Department, after making more than $3.5-billion in payments this decade through a program of student-loan subsidies that Congress has tried to retire, said today it may ask one lender for a repayment. For about $15-million.

The department sent a letter today to the Pennsylvania Higher Education Assistance Agency, a nonprofit lender known as Pheaa, saying it agrees with part of a demand for repayment made by the department’s inspector general.

The finding involves the 9.5-percent loan program, which Congress created in the 1980s to give nonprofit student-loan companies a guaranteed return of 9.5 percent. The program was designed to encourage affordable student loans at a time when interest rates ran as high as twice that level. In more recent years, however, some loan companies have been accused of devising ways to keep some old loans eligible for the 9.5-percent repayment rate, even though Congress set new subsidy rates to reflect lower overall interest costs.

Today’s letter asks Pheaa to recalculate the subsidies it claimed on loans from October 2004 to September 2006. The department said it had estimated Pheaa would end up owing about $15-million in repayments.

A spokesman for Pheaa said it disagreed with the calculation and would challenge it. The spokesman said the department’s decision today, however, had cleared Pheaa of most of the $35-million in repayments that the inspector general had been seeking.

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