Student Loan Blog : IRS

Former Student Finance Corp CEO Gets 5 Years in Prison for Loan Fraud

Student Loan Girl — Thu, 12 Feb 2009 22:38:00 GMT

The former head of bankrupt Student Finance Corp. has been convicted of fraud — his second fraud conviction in two years — after he was found guilty of lying on loan documents used to secure a $25 million line of credit for the student loan company and to obtain $7 million in personal loans, reports The Delaware County Daily Times (“Radnor Businessman Gets 5 Years for Fraud,” Feb. 9, 2009).

According to David Weiss, acting U.S. attorney for the District of Delaware, former student loan executive Andrew Yao also fraudulently obtained millions of dollars in bank loans to purchase a private plane worth $4 million and to refinance his $3 million vacation home in Nantucket, Mass.

Yao has been sentenced to five years in prison and has been ordered to pay $12.5 million in restitution, Weiss said. In 2007, Yao was convicted of bankruptcy fraud after lying about giving almost $700,000 to his mistress, former Playboy centerfold Alexandria Karlsen Wolfe, and about gambling away $150,000 at two Las Vegas casinos.

In his most recent fraud conviction, Yao pleaded guilty to seven counts of making false statements to a financial institution, and one count each of mail fraud, wire fraud and engaging in an illegal monetary transaction. In addition, Yao is subject to criminal forfeiture of $1 million.

As part of the loan scheme, Yao hired an accountant to prepare fraudulent personal tax returns for himself and his corporation from the early 1990s up through 2002. These tax returns were different than the actual returns filed with the IRS, Weiss said, and in many cases, the returns overstated Yao’s income by several million dollars.

“The sentence imposed on Mr. Yao sends an important message to all those who would think about attacking our financial system through fraud,” Weiss said. “His false statements led to the loss of millions of dollars by financial institutions, losses that affected those institutions, their employees, their shareholders and the public.”

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Restructuring of Pennsylvania Student Loan Agency’s Board Wouldn't Affect Tax-Exempt Status as Agency Claims

Student Loan Girl — Tue, 16 Sep 2008 00:03:00 GMT

The Internal Revenue Service has reportedly disproven the Pennsylvania Higher Education Assistance Agency’s claim that cutting the number of lawmakers on its board in half — as recommended by Pennsylvania Auditor General Jack Wagner — would threaten the state student loan agency’s tax-exempt status, according to an article in The Patriot-News (“PHEAA tax status not issue, IRS says,” Sept. 14, 2008).

A letter obtained by The Patriot-News confirms that an IRS official told Wagner’s Chief Counsel Robert Teplitz during a telephone conversation that the proposed board restructuring — based on an audit that found the agency to be lavishly overspending under the current lawmaker-dominated board — “would have ‘absolutely no effect’ ” on PHEAA’s tax-exempt status.

In response to the audit, Wagner proposed that PHEAA, the state’s student loan agency, replace half of the 16 lawmakers on its 20-member board with banking and community leaders, college and university officials, and a full-time college student to restore public confidence in the student loan agency.

James Preston, the CEO of PHEAA, had expressed concern that adhering to Wagner’s suggestion to reduce the number of legislators on the board would threaten the agency’s “tax-exempt status, the loss of which could reduce PHEAA’s ability to provide future public service programs.”

State Sen. Sean Logan, the vice chairman of PHEAA, said, however, that if the PHEAA receives written confirmation directly from the IRS, he would support Wagner’s proposal. “Reducing the number of legislators on the board is a reasonable thing to do,” Logan said.

Wagner’s recommendation followed a special audit of PHEAA’s spending practices between July 1, 2004, and June 30, 2007, in which Wagner concluded that “The PHEAA was governed and managed within a culture that sometimes allowed self-reward to supersede fiscal prudence.”

The audit revealed that PHEAA board members used public money for facials, pedicures, culinary classes, and falconry lessons and spent $768,000 on trips to lavish resorts between 2000 and 2005. Wagner also found that the PHEAA’s 12 executives were grossly overpaid, prompting Wagner to recommend that the salaries of these executives, whose combined income totaled $121 million during the three-year period of the audit, be trimmed.

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New Law May Simplify College Financial Aid Form

Student Loan Girl — Wed, 06 Aug 2008 00:55:00 GMT

Students and parents could spend less time filling out the Free Application for Federal Student Aid under a new provision of The Higher Education Opportunity Act of 2008, according to an article in The Austin American-Statesman, (“New Law to Trim College Financial Aid Form,” August 2, 2008). The legislation was approved by Congress last week but has yet to be signed into law by the president.

Currently, in order to qualify for federal financial aid, families are required to complete the lengthy 11-page FAFSA separately from their yearly tax forms even though the 100-question federal financial aid form is based on tax information families are required to report to the Internal Revenue Service each year. The proposed legislation would allow the IRS to share these figures with the Department of Education, eliminating the need for families to report the information twice.

Requiring the agencies to share data could eliminate the need for as many as 31 questions from the FAFSA, according to a 2007 study by the Institute for College Access and Success.

The current FAFSA, which is used by federal and state governments and most colleges to determine eligibility for financial aid, is so cumbersome to fill out that it represents a roadblock for many students who otherwise might be college bound, the Chronicle of Higher Education reported last year, (“Congress and the Education Department Move to Simplify the Student-Aid Process,” March 30, 2007).

At that time, Rep. George Miller, who is the chief sponsor of the U.S House of Representative’s version of the bill to simplify the FAFSA, told the Chronicle the FAFSA needed to be changed because “It’s long and complicated. It’s over 100 questions. We now see the situation that the form itself can impact the decision about whether students go to college.”

Legislators have not laid out a specific time frame for when the shortened FAFSA would be introduced, leaving the agencies involved to decide when to implement the new FAFSA and the other proposed revisions to the financial aid process:

A simplified process for re-applying for financial aid
Clearer explanations regarding student borrowing options
Requirements that schools and lenders adopt new codes of conduct
Increased transparency and disclosures regarding federal student loan programs

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