4 Lenders Settle Lawsuit Over Use of Student Loan Loophole

The U.S. Justice Department announced on Wednesday that four student loan providers had agreed to pay $57.8 million to settle a False Claims Act lawsuit that accused them of abusing a loophole in federal law to derive hundreds of millions of dollars in excess federal subsidies. The four lenders are Nelnet ($47 million), Southwest Student Services Corp. ($5 million), Brazos Higher Education ($4 million), and Panhandle Plains Higher Education Authority ($1.75 million). The lawsuit was brought by Jon H. Oberg, a former Education Department official who went public with charges that those lenders and others had illegally profited from a provision in federal law that allowed them to continue to make loans for which they were guaranteed an interest rate return of 9.5 percent. As the individual who brought the False Claims Act suit, Oberg will receive a total of $16.5 million under the settlement, with the rest going to the U.S. Treasury.