Justice Dept. is investigating report that student-loan firm was overpaid

WASHINGTON - The Justice Department is reviewing an audit that found hundreds of millions of dollars had been improperly paid to a student-loan company, House Education and Labor Committee Chairman George Miller said yesterday.

Miller (D., Calif.) made the review public during a hearing in which he pressed Education Secretary Margaret Spellings on her decision to ignore a recommendation by her department's inspector general, John Higgins, to recover an estimated $278 million. It is his audit that Justice is reviewing.

A Justice Department spokesman declined comment yesterday.

Spellings defended her decision not to recover the improper payments to the lender, Nebraska-based Nelnet Inc., saying it was prudent to simply extract a promise from Nelnet that it would halt the practice, avoiding a costly lawsuit.

Some lawmakers were skeptical.

"Do you not have confidence in your inspector general?" Rep. John Tierney (D., Mass.) asked. "I'm extremely uncomfortable with this."

New York Attorney General Andrew Cuomo has been leading an investigation into the $85-billion-a-year student-loan industry. He has found evidence that some colleges received a percentage of loan proceeds from lenders given preferred status by the schools and that loan officers at the colleges got gifts from lenders to encourage them to steer borrowers their way.

Cuomo said yesterday that he had reached a $3 million settlement with Student Loan Xpress Inc. and its parent company, CIT Group Inc. Student Loan Xpress also agreed to cooperate with the investigation into potentially improper stock transactions.

Cuomo's investigation revealed that the former chief executive officer of Student Loan Xpress, Fabrizio Balestri, sold or transferred securities to financial aid officers at several colleges and to Matteo Fontana, a senior Education Department official who was recently placed on leave because of the disclosure of his stock holdings.

Cuomo previously reached similar agreements with Citibank, Sallie Mae, JPMorgan Chase & Co., Bank of America Corp., and Education Finance Partners Inc.

The congressional hearing came a day after the House overwhelmingly passed a bipartisan bill that would ban gifts from lenders to schools and impose strict controls on schools that publish approved-lender lists to guide students to certain loan companies.