ALERT: Nelnet Fraud Allegation

From the Market Ticker

In a scathing, more-than-100 page sealed complaint, the US and a complainer (Rudy Vigil) allege that some of the nation's largest banks, including JP Morgan/Chase and Citigroup, have defrauded the US Federal Government by running what amounts to the same scam that happened with subprime lending in the student loan arena.

http://wikileaks.org/wiki/Sealed_complaint_against_JP_Morgan_Chase,_Citigroup_and_Nelnet_for_defrauding_the_United_States_government,_19_May_2008

Specifically:

"The alleged False Claims Act violations arise out of Nelnet's false records, statements and certifications of compliance with Higher Education Act ("HEA") statutes, regulations and Department of Education ("DOE'd") policies that (1) forbid the offering of inducements to any individual in order to secure applicants for FFELP loans such as Consolidation, Stafford and PLUS loans and (2) forbid engaging in fraudulent or misleading advertising.

Gee, really?

Where have we seen this before?

Undisclosed "yield spread premium" anyone?

The difference here is that "ysp" was not, at the time, unlawful. However, offering "inducements" (or if you prefer the more common terms, kickbacks or bribes), under the Higher Education Act, is.

Indeed, there is a long list of specifically-prohibited actions, including discrimination against those not on preferred lender lists, illegal inducements including the payment of points, premiums, payments or other inducements. "The rules prohibit inducements to educational institutions, individuals, or other parties. In particular, inducements to colleges and their employees, as well as inducements to students, are prohibited."

Further, the rules go on to disqualify violating lenders from the HEA under conditions where that lender commits a prohibited act, specifically:

DISQUALIFICATION FOR USE OF CERTAIN INCENTIVES. -- The term "eligible lender" does not include any lender that the Secretary determines, after notice and opportunity for a hearing, has after the date of enactment of this paragraph --

1. offered, directly or indirectly, points, premiums, payments, or other inducements, to any educational institution or individual in order to secure applicants for loans under this part;
2. conducted unsolicited mailings to students of student loan application forms, except to students who have previously received loans under this part from such lender;
3. offered, directly or indirectly, loans under this part as an inducement to a prospective borrower to purchase a policy of insurance or other product; or
4. engaged in fraudulent or misleading advertising.

The truly nasty part of this lawsuit is that it appears that Nelnet was well aware of these practices and in fact had been sued in the past over them. Specifically, the above link has the following paragraphs:

On April 20, 2007, the Nebraska Attorney General announced a settlement with Nelnet Inc., an education lender. Nelnet agreed to pay $1 million to an education fund and to adhere to a code of conduct similar to the one established by the New York Attorney General. It prohibits revenue sharing, opportunity loans, gifts and trips to higher education employees, and paid advisory board service. In some regards it is stronger than the New York Attorney General's code of conduct. For example, Nelnet also agreed to provide borrowers with the better of the direct-to-consumer channel or school channel rates regardless of how the prospective borrower reached Nelnet. Nelnet also supports requiring a minimum of three lenders on preferred lender lists, at least two of which are unaffiliated. In other ways it is weaker. For example, the restriction on paid service on advisory boards is limited to financial aid administrators who are involved with student lending. The prohibition on staffing financial aid offices merely requires proper disclosure and transparency. Nelnet agreed to adopt this code of conduct nationally by August 15, 2007.

On April 25, 2007, the New York Attorney General announced settlements with Bank of America and JP Morgan Chase, where both lenders agreed to adopt the attorney general's code of conduct. Johns Hopkins University announced that it was adopting the Code of Conduct and that it was dropping all preferred lender lists. The University of Texas system had also previously dropped all preferred lender lists.

On July 18, 2007, Nelnet published a summary of findings to date with regard to an ongoing review of its marketing practices, announcing, among other measures, that it was terminating its referral fee relationship with approximately 120 college and university alumni associations.

On July 31, 2007, the New York Attorney General announced an agreement with Nelnet in which Nelnet agreed to contribute $2 million to the national education fund and to adopt the code of conduct. Nelnet also agreed to stop paying alumni associations for loan referrals. This settlement is in addition to the $1 million settlement with the Nebraska Attorney General. However, the New York Times reported on August 1, 2007 that Nebraska Attorney General Jon Bruning has decided to forgive Nelnet's $1 million settlement with Nebraska in light of the $2 million settlement with New York. Higher Ed Watch criticized this lender forgiveness, noting campaign contributions from Nelnet to the Nebraska Attorney General. This may represent a violation of the Nebraska Rules of Professional Conduct. On August 10, 2007, Nebraska Attorney General Jon Bruning announced that Nelnet has agreed to pay the original $1 million settlement after all. The Associated Press reported that the Attorney General approached Nelnet about reinstating the settlement in order to avoid creating the "perception of a conflict of interest".

Reading the entirety of the above link is well worth your time, as is pondering whether there is truly ANY corner of lending in our economy that has not been punctuated with acts that at best violate ethics and at worst violate the law.

More importantly these alleged scams in the education sector have been part and parcel of the reason that college education cost has risen at such an outrageous rate. Absent the "free money" afforded by rip-offs such as are alleged here no university system or college could have possibly maintained an escalation of price at multiples of the increase in wages within our economy.

As such merely accusing the banks of such conduct is insufficient. We the parents must also rise and demand that the outrageously opportunistic parasitic games played by colleges and universities end immediately, and withdraw our consent to the exploitation of our children at the hands of these latter-day robber barons.

If our young adults wish to be exploited in such a fashion that is their right and privilege as adults, but it is my considered opinion after examining a litany of such abuses for more than a decade, all of which have gone unchecked and all of which have occurred with the full knowledge and consent of the colleges and universities in the United States, that I will not subscribe to nor assist in any such scam when it comes to my daughter.

I therefore call for a general boycott by all parents in the completion, filing, or provision of ANY family financial information, including but not limited to the FAFSA. Specifically, the following is an outright scam and fraud upon our young adults:

Under Federal law your family is primarily responsible - to the extent they are able - for paying for your college expenses. To determine how much your family can afford to pay towards your college expenses, we must collect your financial information and if you are a dependent student, we must also collect your parents' financial information.

This statement, by the way, is a lie.

Federal law does not change legal realities as ensconced in The Constitution of The United States, as The Constitution is the supreme law of the land. At the age of 18 you are a legal adult, entitled to all of the rights and privileges thereupon (excepting the consumption of alcohol.) You may tell your parents to piss off and never speak to them again. Your parents do not have a right, at 18, to control your coming and going, they cannot control where you live, who you sleep with or what you eat or drink. Your right to travel, live as you wish, and determine the path of your own life is unrestricted irrespective of your parents' wishes, as a matter of The Constitution.

This does not (and should not) prevent your parents from contributing, on their own volition, to a young adult's education but it most certainly must prohibit the rubric of mandatory "contributions" to someone who is, under The Constitution, Federal and State law, a legal adult with all rights, duties and privileges that attach.

There is in fact no federal law that states that a parent is required to pay for their child's college education. What the law actually states is that The Government will not provide you with free money unless your parents "contribute" to the extent that their formulas say they can. That's a very different thing indeed, but the government, like your college, is not above lying to you as a student - or the parent of one. The parents of a student are in fact under no legal obligation to provide any information requested. Of course the government isn't obligated to provide you with "free money" (really, money they stole from a taxpayer at gunpoint) either!

If you're a student, do you want to attend a school that lies to you before you even get there?

If you're a parent, do you want to "contribute" to a school that lies to you (and your son or daughter) before they even set foot on the campus?

It is time to break the backs of these lenders and universities that have declared financial war on this nation, including a long-standing pattern of conduct of violating the law with impunity, all of which has caused the spiraling of college costs to a degree that is absolutely unsupportable by any means other than raw theft from the public.

If you EVER want to see college educations return to an affordable status then you must support and enforce within your own household a total and complete boycott on this rank attempt by the financial industry to extend to you, as an adult, a demand for payment at any rate a college so chooses for "educational expenses" for another legal adult (even though they may be your progeny.)

College education used to be something that could be paid for through working while attending school along with scholarship monies for those who showed promise in their educational future.

Today, college educations are virtually dependent upon transfer payments and tens or even hundreds of thousands of dollars in debt taken on by families and students, induced and coerced by both schools and lenders who do not even comply with the law in an astounding number of cases, and whom have together lobbied for Federal Laws that are blatantly unconstitutional attachments of financial obligation for those who are, under the law, legal adults.

This is Constitutionally indefensible and amounts to nothing other than preying upon our youth through the use of them as "levers" to both induce them to take on unconscionable debt and, when possible, abuse their parents - all for the benefit of the banksters who, this lawsuit alleges, don't even comply with the thin protections that Federal Law is supposed to provide!

http://market-ticker.denninger.net/archives/1517-ALERT-Nelnet-Fraud-Allegation.html