[image url="http://static.businessinsider.com/image/4adc71710000000000f67211/image.jpg" link="lightbox" caption="" source="" alt="nelnet" align="left" size="xlarge" nocrop="true" clear="true"]
We reported this week that recently unsealed court documents show that JPMorgan (JPM) and Citigroup (C) are being sued in a whistle-blower suit for conspiring with education finance company Nelnet (NNI) to allegedly receive federal student loan subsidies by making false claims and illegally recruiting more borrowers.
Despite such accusations, Nelnet was one of four companies awarded contracts in June to service billions of dollars of student loans in the Dept. of Education’s portfolio, even after settling with the DoE and the Attorneys General of New York and Nebraska in 2007 over similar issues.
We asked the Department to explain. Here’s what spokesperson Jane Glickman told us:
“All companies were evaluated on a series of technical factors including…the benefits and risks associated with each plan and the company’s past performance. Past performance was measured by, among other things, customer satisfaction results and each firm’s plan for improving those results. All companies were also evaluated on the reasonableness of their proposed pricing.”
If the new suit and previous allegations against Nelnet are to be believed, those criteria clearly weren’t met. We asked Glickman to comment on Nelnet more specifically — we’ll let you know what we hear.
In the meantime, we found that Nelnet stepped up its lobbying after facing criticism. Between 2005 and 2009, the company spent $2.51 million, including $1.14 million in 2008 alone, according to OpenSecrets data.
Nelnet also gave big during the 2008 election cycle. As the Capital Eye blog noted in July:
Nebraska-based NelNet, for example, consistently ranks among the top 10 donors in the finance/credit industry. Like Sallie Mae, NelNet traditionally favours the GOP. The company was an active FFELP participant until a combination of reduced subsidies from Congress and the intensifying credit crunch derailed the company’s student-lending operation last year. NelNet still managed to contribute $248,900 to federal campaigns during the 2008 election cycle, however, with donations splitting equally between Democrats and Republicans.
Nelnet’s continued role as a major servicer of student loans frustrates some. C. Cryn Johannsen of the group Forgive Student Loan Debt told us:
“The recklessness with which companies like Nelnet have used and abused their unprecedented access to taxpayer money and power over borrowers makes them, in my opinion, particularly unfit to continue to administer these programs (in particular the FFELP [Federal Family Education Loan Program]). Indeed, their actions are largely (though admittedly not solely) to blame for creating what I call the indentured educated class.”
Johannsen also says the recent lawsuit naming JPMorgan and Citi is indicative of a broader problem:
“The fact that JPM and Citi Bank are involved underscores how intertwined student lending is with the banking industry. It also demonstrates how the student lending industry has been overlooked in terms of regulation, and that’s why I consider it to be a serious crisis, and might very well represent the next ‘housing’ crisis.”
We didn’t originally get comment from JPMorgan, Citi or Nelnet, but Citi recently said the suit was “without merit” and Nelnet called it “frivolous,” according to Reuters.
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