Throwback Thursday: In 1985, U.S. Spent $760K in Interest on Unused Loans
In 1985, the Department of Education spent $760,000 — over $2 million in 2023 dollars — on interest and fees for student loans that were never used.
Sen. William Proxmire, a Democrat from Wisconsin, awarded the Department of Education his Golden Fleece Award for this reckless disregard of taxpayers’ money.
As Proxmire explains, “from 1978 to 1982, a major U.S. bank processed the paperwork, obtained all the necessary approvals, and issued 1,600 checks to students. Months passed, semesters went by, school years ended, but for some reason the students never cashed their checks.”
Despite the bank never actually loaning out the money since the checks were never cashed, the Department of Education continued to pay fees and interest on these loans, never double checking that they were taken out. This allowed the bank to cash in, not only earning the interest from the government on the money that it never loaned out, but it was also able to loan that same money out to someone else with interest.
This went on for so long, with neither the bank nor the Department of Education realizing that the checks were never cashed, that the bank assumed the loans were in default, and submitted default claims to the Department of Education, which were paid.
Eventually, the Department of Education discovered its mistake and was able to get back the principle it paid, but was unbale to recoup the interest and fees.
All in all, the debacle took four years to sort out, and cost taxpayers $760,000. Proxmire aptly notes that, “The Department of Education gets a big, red ‘F’ for its stewardship of the taxpayers’ money.”
The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com
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