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Ed Dept. alleges 34 million in state misuse of funds
WASHINGTON (11/21/07)—An inspector general’s report from the Department of Education (DOE) alleged that the student loan corporation in Pennsylvania improperly used a subsidy program to collect millions from the federal government, but the chief executive of the state agency rebuffed the charge. According to an article in the Nov. 20 issue of The New York Times, the IG of the Department of Education called on that agency to collect $34 million from the Pennsylvania Higher Education Assistance Agency (PHEAA), a state-owned company that makes and guarantees student loans, which it claims exploited the subsidy. However, PHEAA Chief Executive James Preston issued a statement saying that the report made a jumble of a “present-day interpretation of past department regulations.” He added that it ignored 10 years of his agency’s compliance with regulations. The article noted that a DOE spokesperson has said the report is under review. The subsidy program, started in the high-interest-rate environment of the 1980s and which guaranteed lenders a 9.5% rate of return, has seen a number of failed attempts by Congress to rein it in. The PHEAA is the state agency that warded off a $1 billion hostile takeover attempt by Sallie Mae in 2005.


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