Compass Lexecon Client Pennsylvania Higher Education Assistance Agency Prevails in False Claims Act Litigation

Jury Returns Defense Verdict in U.S. ex rel. Oberg v. Pennsylvania Higher Education Assistance Agency

Jon H. Oberg, a former Department of Education (“DOE”) employee, sued numerous companies across the United States for making false claims against the “Special Access Program” administered by DOE. This program offers subsidies to eligible organizations that provide student loans.

DOE’s Special Access Payment (“SAP”) program underwent multiple changes between 1980 and 2010. One of the changes constrained certain participants to half of the standard SAP, subject to a 9.5 percent minimum interest subsidy. In particular, student loans that were funded by tax-exempt funding vehicles were entitled to the so-called “half-SAP.”

Later, some student lenders found it profitable to transfer student loans subject to half-SAP rules into funds financed with taxable money, thus obtaining full-SAP subsidies from the U.S. government. In the mid-1990s, DOE prohibited further re-characterizations from half-SAP to full SAP.

In or about 2001, interest rates fell sharply and stayed low. Student lenders, faced with a changed set of economic circumstances, found it desirable to move student loans from full-SAP vehicles to half-SAP vehicles (a recharacterization that had not been prohibited by prior DOE rules or Congressional legislation). Such recharacterizations were desirable because of the 9.5 percent floor on half-SAP subsidies—a floor that made the subsidy higher than full-SAP subsidies.

During the early 2000s, over one dozen student lenders recharacterized billions of dollars of student loans in this fashion.

Mr. Oberg, as an employee of DOE, noted increased SAP payments. He expressed his belief that requests for half-SAP subsidies contradicted the law. His superiors did not agree with his assessment. Later, he made an FCA referral to the U.S. Department of Justice, which declined to prosecute.

Mr. Oberg subsequently sued nine lenders ex rel. All of them, excepting the Pennsylvania Higher Education Assistance Agency, settled for an aggregate of $100 million.

The Pennsylvania Higher Education Assistance Agency litigated to jury verdict and prevailed in December 2017.

Jonathan Arnold, PhD., a Senior Consultant with Compass Lexecon, served as the expert witness on regulatory economics issues relating to the SAP subsidy program. He also examined (i) whether and to what extent regulatory changes, and subsequent economic developments, led to unintended consequences with regard to special allowance payments and (ii) the federal government’s and PHEAA’s responses to those changes and unintended consequences.

Dr. Arnold was supported by a team in Compass Lexecon’s Chicago office led by Anne Marie Yale. Compass Lexecon worked with Matthew T. Regan, Michael A. Glick, Judson Brown, Tracie L. Bryant and Thomas P. Weir of Kirkland & Ellis LLP and Craig Reilly of The Office of Craig C. Reilly, Esq.