"A child's learning is the function more of the characteristics of his classmates than those of the teacher." James Coleman, 1972

Monday, August 20, 2007

Nelnet's Prosecutor/Defender

From TPM Muckraker:

Call it a rookie political mistake. Its one thing for a politician to lend a hand to his constituents, particularly the ones who can afford to make campaign contributions. But please; be discreet.

Last week Nebraska Attorney General Jon Bruning ordered Nelnet, a student lending company caught up in the recent industry-wide scandal, to pay a fine of one million dollars. Nelnet has, at least twice, paid university administrators who recommended that students finance their debt through the firm. The company is also hired by universities to educate students about how to pay for college; not illegal, but surely a conflict-of-interest practice that they have agreed to stop.

So what’s wrong with this picture? Nothing, except the million dollars is actually a fine that Bruning assigned the company all the way back in April, a fine that he forgave only two weeks ago.

Bruing erased the fine after New York Attorney General Andrew Cuomo ordered a similar punishment for Nelnet. Cuomo has made investigating student lenders a focus of his office; already, several banks have been ordered to contribute to a national education fund. Cuomo announced on July 31st that Nelnet would be paying $2 million to the fund.

Upon hearing the news, Bruning immediately forgave Nelnet his part of the obligation. He also used the opportunity to take a few shots at his fellow AG, saying that he “never believed that the investigation was particularly useful.” Bruning went even further, saying, "Nelnet is an ethical, decent, honest company…. I will never apologize for being a defender of Nelnet."

Admittedly, that statement is a bit misleading. After all, Bruning was removing a fine that his office placed on the company; Bruning somehow styled himself both prosecutor and defender. But more importantly, Nelnet doesn’t exactly have a sterling reputation. Only a few months before the original settlement, Nelnet settled another deal with Secretary of Education Margaret Spellings.

For two years, Nelnet had falsely classified a large collection of loans, resulting in a huge government subsidy. (The government will guarantee student lenders a return of 9.5% on certain types of loans. Nelnet incorrectly identified some loans, allowing them to earn twice market value on the investments.) Spellings informed the company that they would not be able to collect future subsidies on the mislabeled loans, but she did allow the company to keep $300 million in taxpayer money that it had already received.

Maybe Bruning was just sticking up for Nebraska (Nelnet is based out of Lincoln). Then again, Bruning might have been getting on better terms with a firm known for its generous political contributions.

Bruning has announced that he will run for the possibly vacant Senate seat of Chuck Hagel (R). HigherEdWatch.org, whose extensive coverage helped keep the story alive, has noted that the original settlement came only weeks after Bruning’s campaign got a $16,000 boost from Nelnet execs. In fact, the settlement was announced without Bruning’s office ever launching an investigation (presumably, Nelnet approached Bruning in the hopes of avoiding Cuomo’s investigation).

For now, the fine has been reinstated, and Bruning has hopefully learned a lesson both about conflicts of interest and discreet politics. He recently declared in an interview that the resurrected fine “eliminates the opportunity for political gamesmanship by those who may want to create the perception of a conflict of interest.” We’ll see if his opponents agree with him.

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