Fifth Third Bank could potentially lose its right to participate in the Federal Family Education Loan Program, the Department of Education's program that allows private banks to offer Stafford Loans and PLUS loans. An audit by the Department of Education's Office of the Inspector General suggests that Fifth Third may have offered illegal inducements to third-party lenders. Lenders that participate in FFELP, such as Fifth Third, are legally allowed to act as trustees for third-party non-FFELP lenders, allowing the non-FFELP lenders to make or purchase federal student loans. Fifth Third's actions in some of these "eligible lender trustee" agreements have come under scrutiny, resulting in the audit and harsh recommendations from the Office of the Inspector General.
Fifth Third and the now-defunct Student Loan XPress entered into eligible lender trustee agreements with three lenders: MSA Solution Inc., Pacific Loan Processing Inc., and Law School Financial. The two FFELP lenders then paid these three trustees premiums to generate higher volumes of student loans. According to the audit, this violates federal law and could cost Fifth Third its status as an FFELP lender. The Office of the Inspector General also recommended that the Department of Education further penalize Fifth Third through fines and the withholding of federal guarantees on the over $3 billion in loans generated through these agreements.
This is not the first time an FFELP lender has come under fire for lending practices. Over the past two years, numerous lenders have been investigated by the Department of Education or New York Attorney General Andrew Cuomo for questionable actions ranging from bribing schools for places on preferred lender lists to recycling loans through a loophole to claim millions of dollars in federal subsidies.
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