Audit of State Student Loan Agency Calls for Major Reform

Published 21 August 08 02:23 PM | Student Loan Girl

The Pennsylvania Auditor General Jack Wagner has recommended sweeping changes for the Pennsylvania Higher Education Assistance Agency a year after the state student-loan agency was found to be lavishly overspending on internal operations, according to a Forbes.com article (“Pa. Audit Seeks Loan-Agency Board Overhaul,” Aug. 19, 2008).

In a performance audit of the agency, Wagner concluded that “The PHEAA was governed and managed within a culture that sometimes allowed self-reward to supersede fiscal prudence. In those instances PHEAA failed its mission by not using all available resources to benefit Pennsylvania students.”

Wagner began the audit in April 2007, after news reports accused the agency of overpaying executives and staff members and freely spending hundreds of thousands of dollars on extravagant banquets, bar bills, golf outings, and spa treatments — all while failing to increase college grant amounts to keep pace with rising tuition costs.

Now, after a year-long investigation that analyzed the agency’s spending and management practices between July 1, 2004, and June 30, 2007, Wagner is asking the student loan agency to trim the salaries of PHEAA’s 12 executives whose combined income totaled $121 million during the three-year period of the audit.

Wagner is also urging the PHEAA to replace half of the 16 lawmakers on the 20-member PHEAA board with heads of banking and community agencies, leaders of colleges and universities, and a full-time college student.

PHEAA Bends on Some of Report’s Recommendations

PHEAA President and Chief Executive Officer James Preston said while the agency agrees with most of Wagner’s findings, the audit is based on “really old information.”

“What you have to look at is what’s really happened going forward,” he said. “Our board and our management and employees are dedicated to reform.”

Over the last 18 months, PHEAA has overhauled its spending practices, instituted annual internal spending audits, and increased oversight of its travel policies.

But Preston rejects Wagner’s proposal to alter the makeup of the agency’s board — a change that would require legislative approval — saying that too many adjustments to the board’s organization would jeopardize the PHEAA’s ability to retain its tax-exempt status, which allows the agency to receive state funding for its student loan programs.