Student lender Nelnet agrees to pay $55 million to settle whistle-blower lawsuit

Student lender Nelnet settles lawsuit for $55M

OMAHA, Neb. — Student lender Nelnet said Friday it agreed to pay $55 million to settle a whistle-blower lawsuit that accused the company and nine other lenders of defrauding the U.S. government out of $1 billion.

Nelnet did not admit any wrongdoing as part of the settlement, which will affect the company’s third-quarter earnings. The settlement must be approved by the U.S. Department of Justice and the court before it becomes final.

A trial in the lawsuit filed by former Education Department researcher Jon Oberg had been scheduled to begin Tuesday, but before the Nelnet settlement was announced Friday, U.S. District Judge John F. Anderson canceled the trial date to allow additional time for settlement talks.

A government audit in September 2006 found several student lenders had received an artificially high rate of return for several years through a program that was supposed to be phased out in 1993. Oberg helped discover the overpayments.

Oberg’s lawyer, Christopher Mills, did not immediately respond to a message left Friday afternoon.

Nelnet says it was accused of receiving $407 million in improperly high returns, and if it had lost at trial, damages could have been tripled.

In January 2007, Nelnet made a separate deal with the federal government regarding the overpayments. At that point, the Education Department agreed not to try and recover the improper payments Nelnet had received in return for the company halting the practice.

Oberg filed his lawsuit in Virginia in September 2007 on behalf of the U.S. government as a whistle-blower. It was unsealed last fall after the government declined to pursue the case. Under the whistle-blower law, Oberg will be allowed to keep a portion of the damages collected because he brought the lawsuit.

Nelnet officials have defended their actions in the past and said they never attempted to defraud the government and federal officials knew what the company was doing.

Nelnet spokesman Ben Kiser said Friday the Lincoln, Neb.-based company was pleased to resolve the lawsuit.

“While we believe the case brought by Mr. Oberg was without merit and that we would have prevailed at trial, a settlement eliminates the uncertainty, distraction, and expense of a trial,” Kiser said.

Among the other defendants in the case is Reston, Va.-based Sallie Mae. Officials at that student loan giant declined to comment because the lawsuit is still pending.

The lawsuit says all the lenders involved took advantage of a program guaranteeing a 9.5 percent return that was put in place in the 1980s when interest rates were high.

Congress ended the 9.5 percent guaranteed return in 1993, but Oberg’s lawsuit said Nelnet and other lenders found ways to continue getting that rate of return.

All proceedings in Oberg’s lawsuit will be on hold until at least Oct. 1. Anderson said that a status hearing would be held in the case that day in the event the current defendants had not yet resolved all their claims.

Online:

Nelnet Inc.: www.nelnet.com