Taking up an issue that could resonate with young voters, Sen. Chris Dodd’s (D-Conn.) presidential campaign blasted the Education Department for allowing student loan recipients to over-pay the loans and not get the money back. In a sharply worded statement Monday, Dodd pounced on a Washington Post article from Saturday in which Secretary of Education Margaret Spellings admitted that her department "had some responsibility" for "confusion" over regulations that allowed the excess payments to occur.

"At a time when it's clear that a college education is becoming more and more necessary, it's unconscionable that the Department of Education is allowing hundreds of millions of dollars to go unaccounted for, increasing the cost burden of a college education for all Americans," Dodd said in the press release.

In January 2007, the Department of Education reached a settlement with the Nelnet corporation whereby the company agreed it would no longer make use of an accounting technique to claim a government subsidized 9.5 percent interest rate on a class of student loans issued at the beginning of the decade — an interest rate more than double the prevailing market rate at the time. But, as part of the agreement, the company would keep $278 million in past payments already made by the Department. Spellings justified that decision in an interview with the Post, saying, “We had legal risk, in my view, and the prudent course of action was to, once and for all, end this practice and provide certainty in the industry that that was not allowable. While it cost us $278 million to make that final call, it also saved us potentially a billion dollars had we lost the litigation.”

But some higher education experts, like Michael Dannenberg at the nonpartisan New America Foundation, think the lenders are getting an unusually sweet deal. “The Department of Education makes the tiniest high poverty school districts get an act of Congress passed to forgive overpayments in the thousands of dollars, but it has no problem letting student loan companies like Nelnet walk away with hundreds of millions of dollars.” Dannenberg argues that it’s the Justice Department’s job to assess the threat of litigation. ...

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