Nebraska-based Nelnet will pay the federal government a settlement of $55 million to resolve a quitam lawsuit brought against it and other educational lenders. The lenders, who include the nation’s largest student-loan company, Sallie Mae, are accused of defrauding taxpayers of more than a billion dollars in student-loan subsidies.

The lawsuit was brought by Jon H. Oberg, a former Education Department researcher, on behalf of the federal government.  Seven years ago he discovered that Nelnet and other lenders were exploiting a loophole in a program that guaranteed a 9.5 percent return on certain loans.  This guarantee was made in the 1980s when Congress provided nonprofit lenders this rate of return as protection against a down economy. However, despite Congress having eliminating that guarantee in 1993, many loan companies claimed that government regulations allowed them to continue to receive the 9.5 percent return in a practice known as “recycling” – using the returns backed by the old loans to make new ones.

Click here to read the full article, “Nelnet to Pay $55-Million to Resolve Whistle-Blower Lawsuit.”