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Special Allowance Payments to Nelnet for Loans Funded by Tax-Exempt Obligations
Richard J. Dowd (au)
Special allowance payments are made to lenders in the Fed. Family Educ. Loan Program to ensure that lenders receive an equitable return on their loans. The amount of a special allowance payment is the difference between the amount of interest the lender receives from the borrower or the gov’t. & the amount provided under requirements in the Higher Educ. Act of 1965 (HEA). The HEA includes a special allowance calculation for loans funded by tax-exempt obligations issued before Oct. 1, 1993. The quarterly special allowance payment for these loans may not be less than 9.5%, minus the interest the lender receives from the borrower or the gov’t., divided by 4, here called the “9.5% floor.” When interest rates are low, the 9.5% floor provides a significantly greater return than lenders receive for other loans. In April 2003, Nelnet implemented a process (”Project 950”) to increase the amount of its loans receiving special allowance under the 9.5% floor. The object of this audit was to determine whether, for the period Jan. 1, 2003, through June 30, 2005, Nelnet’s use of Project 950 to increase the amount of its student loans billed under the 9.5 floor complied with the requirements in the HEA, regulations, & other guidance issued by the Dept. of Ed.
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