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E.D. Paid Too Much in Loan Subsidies, Report Says

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Washington--The Education Department is paying banks and other lenders millions of dollars more than it should on interest subsidies for guaranteed student loans, the General Accounting Office concludes in a new report.

The Congressional watchdog agency found that in one 16-month period in which 16 lenders were reviewed, the department overpaid at least $1.8 million in such subsidies because lenders had submitted erroneous billings.

As the agency that oversees the Guaranteed Student Loan Program and other federal financial-aid programs for college students, the department pays interest subsidies to some 14,000 private lenders. The loans are backed by state agencies or other guarantors, and ultimately by the federal government.

The department's inadequate oversight of lenders, the report says, "could be costing the federal government millions of dollars each year in interest-subsidy overpayments to lenders in the Guaranteed Student Loan Program."

The report says the department relies on the lenders to retain adequate documentation and submit accurate billings. Its system of checking the billing is largely limited to checking the calculations and determining whether the forms have been filled out properly.

The study recommends that the Congress amend the Higher Education Act to allow the department to bill lenders for interest on overpayments. It also suggests that lenders be required to undergo independent audits of their loan accounts and interest billings.

In a response attached to the report, Education Department officials said current review procedures were adequate. But they expressed general agreement with the report's findings, and said the department was taking steps to improve its detection of billing errors.

Meanwhile, federal officials moved last week to attack another problematic aspect of student-aid programs--the alleged misuse of aid by technical and trade schools.

The Justice Department filed a $366-million civil lawsuit against an Indiana truck-driver-training operation that it claims defrauded the Education Department by submitting false documents to become eligible for student-aid programs.

The suit was filed on behalf of the Education Department in U.S. District Court in Indianapolis against Continental Training Services Inc., Superior Training Services Inc., and Gary L. Eyler, the primary owner of both companies.

Mr. Eyler could not be reached for comment at his office late last week.

Continental and Superior offer courses in truck driving and operating heavy equipment in at least 48 states. The courses involve homestudy followed by resident training at one of several sites around the nation.

The lawsuit stems from an investigation by the Education Department's inspector general's office, which found that Continental became eligible for the student-aid programs by submitting false statements about the length of its courses and the procedures it used to assure that students were able to benefit from the courses, as federal regulations require.

Approximately 92 percent of Continental's tuition revenue comes from federal aid programs, the Justice Department said, and about 95 percent of its students received some form of federal aid.

The Justice Department said that between 1980 and 1988, the defendants fraudulently received $131 million from their participation in the federal Pell Grant and Guaranteed Student Loan Programs.

The suit seeks to recover three times that amount from the defendants.--mw

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