Audit: Student-loan agency misused $34M

HARRISBURG, Pa., Nov. 20 (UPI) -- Pennsylvania's student loan agency exploited a subsidy program to collect $34 million from Washington, a U.S. Education Department audit said.

The inspector general's audit called on the department to recover the payments from the Pennsylvania Higher Education Assistance Agency, a state-owned company that makes and guarantees student loans.

Agency Chief Executive Officer James Preston said the agency had complied with department regulations and received the payments with Education Department approval, The New York Times reported.

The audit is based on "present-day interpretation of past department regulations," Preston said in a statement.

It also "ignores 10 years of our compliance with regulations," he said.

The subsidy program was enacted in the 1980s, when interest rates were high, as an incentive to continue making the loans. It guaranteed lenders a 9.5 percent rate of return.

When interest rates fell in the early 1990s, Congress tried to rein in the program, but the loans ballooned as lenders exploited a loophole to keep receiving the subsidy, the Times said.

In October, Pennsylvania Auditor-General Jack Wagner released a report accusing the agency of giving excessive bonuses and incentives.