Lender Settles Lawsuit Over Use of Federal Loophole

August 16, 2010

Nelnet announced on Friday that it had agreed to settle a federal False Claims Act lawsuit that accused the company (along with other student loan providers) of taking advantage of a loophole in federal law to derive hundreds of millions of dollars in excess federal subsidies. The company, without admitting liability, tentatively agreed to pay $55 million to settle claims by a former federal worker that Nelnet, Sallie Mae, 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. It was not clear as of Sunday if other lenders in the case had reached similar settlements, but the Journal-Star of Lincoln, Neb., reported that the judge in the case had issued an order Friday canceling a trial that was set to begin tomorrow.

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