Back in September, the inspector general at the U.S. Department of Education (ED) ruled that student loan giant Nelnet had profited from $278 million in improper subsidies.  But on Friday ED announced it is not going to attempt to recover the money.  (It goes without saying that Friday is ED's favorite day of the week for  bad-news dumping.)

The language of the Department's IG report on Nelnet is unambiguous:

Nelnet’s Project 950 did not fund loans from an eligible source in compliance with the HEA, regulations, and other guidance issued by the Department.  Therefore, the increased amount of loans created by Project 950 was ineligible to be billed under the 9.5 percent floor.   

Given the IG's report and the huge amount of money at stake, it's hard to argue with the conclusion of Senator Ted Kennedy, who said, "The administration should have settled for nothing less than the full recovery of Nelnet’s ill-gotten proceeds from these loans."

But, hold on.  Under Secretary of Education Sara Martinez Tucker has an explanation for ED's willingness to give up $278 million in tax dollars.  Here's how the New York Times paraphrased it:  "[T]he department had decided not to recover past payments because such a precedent might require it to pursue other loan companies, too, possibly driving smaller ones out of business and reducing borrowing options."

Think about that for a minute.  It is now the policy of the U.S. government to avoid going after large companies that obtain tax money improperly in order to protect small companies that obtain tax money improperly.  Does that mean we can expect an announcement from the Justice Department that federal prosecutors will no longer investigate drug kingpins because it leads to pain and suffering for small-time dealers and recreational users?

There is a more likely explanation for ED's inaction.  It can be found by considering Nelnet's political contributions, described here by Higher Ed Watch blog, which notes that Nelnet made the "single largest corporate donation" to the National Republican Congressional Committee in 2006.