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Letter to the Honorable John P. Higgins, Jr., Inspector General US Department of Education


Location: Washington, DC

October 31, 2007

The Honorable John P. Higgins, Jr.
Inspector General
U.S. Department of Education
400 Maryland Avenue, S.W.
Washington, D.C. 20202

Dear Inspector General Higgins:

We are writing to request that your office undertake an investigation to determine the full amount of improper special allowance payments made by the Department of Education to student loan lenders through the "9.5 percent loan" subsidy.

We greatly appreciate your previous investigations on this issue, which, among other findings, revealed that the Department made $278 million in improper 9.5 percent special allowance payments to Nelnet. As you know, however, dozens of lenders have received 9.5 percent special allowance payments during the 27-year history of the subsidy, so it is likely that the sum total of improper payments is much higher. According to an analysis of Department data by the Washington Post, between 2003 and 2006 alone, as much as $300 million may have been improperly paid to other lenders who received 9.5 percent special allowance payments.

As early as 2005, Members of Congress had asked the Department to conduct an audit of all lenders that increased the volume of loans claimed as entitled to the 9.5 percent guaranteed rate of return. The Secretary of Education recently stated that her office does not plan to conduct such an audit, and expressed doubt that the total amount of overpayments is even "a knowable number." We believe that the total amount of improper payments is a knowable number, and that taxpayers deserve to know the total amount of these payments. Taxpayers also deserve information on which lenders were involved, what methods they used to claim these subsidies unfairly, and why the Department allowed the inappropriate subsidies to be paid. We request that you conduct a careful investigation of these issues.

Since the 9.5 percent loan scandal first emerged, Congress has acted to limit the inappropriate growth of these loans through recycling, and the Department has prohibited lenders from receiving inflated 9.5 percent special allowance payments in the future. These steps will help curtail future abuses, but the public deserves full knowledge of the funds that were misspent in the past. Your thorough investigation of this issue will help us determine the extent to which Congress needs to oversee the Department's administration of the federal student loan programs more closely, and inform future debate on the Federal Family Education Loan Program.

At a time when millions of students and families are struggling to meet the high cost of college, we owe them a full, fair, and transparent accounting of any possible waste or fraud in the student loan programs. We welcome the opportunity to work with you.

With respect and appreciation,


Patty Murray
United States Senator

Edward M. Kennedy
United States Senator

Barack Obama
United States Senator

Byron L. Dorgan
United States Senator

Barbara Mikulski
United States Senator

Hillary Clinton
United States Senator

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