A Lincoln-based student loan company said Friday it agreed to a proposed $55 million payment to the federal government to settle a whistle-blower’s lawsuit.
Former Nebraskan Jon Oberg, who filed the lawsuit, alleged that Nelnet Inc., cheated the government out of a total more than $300 million. Potential court damages could have tripled that amount.
Nelnet Inc. said in a statement that it agreed to the settlement to eliminate “the uncertainty, distraction and expense of a trial.”
The proposed agreement is subject to approval of the U.S. Department of Justice and a final agreement signed by both parties. The agreement would settle the matter without Nelnet admitting liability or wrongdoing.
“We are pleased to have reached an agreement to successfully resolve this outstanding matter,” Nelnet said, adding that pre-trial evidence “corroborated and strengthened Nelnet’s already strong position in the matter.”
Nelnet said it believes that the lawsuit was “without merit and that we would have prevailed at trial.”
The only reason for settling is “to eliminate all uncertainties, irrespective of the company’s confidence that it would have ultimately prevailed,” the company said.
“Trials are uncertain even when the law and the facts are on your side,” said Ben Kizer, a Nelnet spokesman.
He said the company expects Justice Department approval in the next few weeks and a final agreement shortly after that.
Moody’s Investor Service said in a statement Friday that a settlement is “a positive” from the perspective of the company’s credit because “it reduces the uncertainty of the financial impact of a trial, and the $55 million settlement payment is manageable.”
Nelnet said it would pay any settlement out of its existing cash, recording a $55 million expense in its third-quarter financial report.
Oberg sued Nelnet and several other student loan companies, alleging they collected excessive taxpayer-funded payments on certain student loans that paid 9.5 percent interest.
He filed the lawsuits under the False Claims Act, a federal law that allows citizens to seek damages by showing that the federal government was defrauded. Some of the lawsuits still are pending, although Nelnet’s involved the most money.
The law allows those filing the suits to collect between 25 percent and 30 percent of the judgments or settlements, with the federal government getting between 70 percent and 75 percent.
A $55 million settlement means Oberg and his attorney would receive between $13.75 million and $16.5 million.
Oberg, who is retired and lives in Rockville, Md., and his attorney, Michael Sturm of Washington, D.C., declined to comment on the proposed settlement.
The lawsuit had been scheduled to go to trial in federal court next week in Virginia. A federal judge last week delayed the trial and scheduled a settlement conference.
The case began seven years ago when Nelnet used a loophole to get bigger federal subsidies on some student loans.
Nelnet said it acted properly all along, but Oberg alleged that the student loan companies illegally boosted their profits at the expense of a program intended to help students and their families.
The companies shouldn’t be allowed to get away with fraudulent financial gains, the lawsuit said.
Nelnet argued that it informed Education Department officials up-front that it was increasing its subsidy billings and the legal basis for the claims. That proves there wasn’t intent to defraud the government, the company said.
Nelnet officials cited statements from several education department officials that showed no fraud and indicated the payments were lawful and proper under federal laws.
The dispute was resolved through a 2007 agreement with the Education Department, Nelnet said.
The settlement let the company keep the payments it had received but ended future payments.
Oberg argued that Education Department officials didn’t understand the full scope of how the company had increased its subsidies.
Oberg, a budget official in the administration of former Nebraska Gov. J.J. Exon, was working as a researcher in the Education Department in 2003 when he noticed the student loan issue.
The program for the 9.5 percent loans had been intended to make them more affordable during a period of high interest rates. Nelnet and the other student-loan companies created a program of 9.5 percent loans even after interest rates declined, and they continued to receive higher payments from the government.
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