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Audit hits payments to student loan firm

Education Secretary Margaret Spellings testifies before the House Education Committee yesterday. (Susan Walsh/Associated Press)

WASHINGTON -- The Justice Department is reviewing an audit that found hundreds of millions of dollars have been improperly paid to a student loan company, House Education Committee chairman George Miller said yesterday.

Miller, a California Democrat, made the review public during a hearing in which he pressed Education Secretary Margaret Spellings on her decision to ignore a recommendation by her department's inspector general, John Higgins, to recover an estimated $278 million. It's the IG's audit that Justice is reviewing.

Spellings defended her decision not to recover the improper payments to the lender, Nebraska-based Nelnet, saying it was prudent to simply extract a promise from Nelnet that it would halt the practice, avoiding a costly lawsuit.

Spellings, under fire for her oversight of the $85 billion-a-year student-loan industry, told House panel members she would propose new rules, including a ban on lender gifts to college officials.

The revised regulations also would "limit deceptive marketing by lenders" and set standards for the way colleges recommend certain loan providers to students and parents, Spellings said.

New York Attorney General Andrew Cuomo, who has been leading an investigation into the student loan industry, yesterday said he had reached a $3 million settlement with Student Loan Xpress Inc. and its parent company, CIT Group Inc. Student Loan Xpress also agreed to cooperate with the investigation into potentially improper stock transactions.

Cuomo's investigation revealed that former Student Loan Xpress chief executive Fabrizio Balestri sold or transferred securities to financial aid officers at several colleges and to Matteo Fontana, a senior Education Department official who was recently placed on leave due to the disclosure of his stock holdings.