Student Loan Blog : student loan agency

Student Loan Foundation Accused of ‘Disgraceful’ Mismanagement

Student Loan Girl — Thu, 19 Mar 2009 00:01:00 GMT

All six governor-appointed board members of the Connecticut Student Loan Foundation were dismissed by Connecticut Gov. Jodi Rell March 12 after a recent state audit found that the student loan agency had severely mismanaged its funds.

“Whether through mismanagement or misfeasance or a combination of both, while the Foundation was driving its finances into the ground it was also paying its executives huge raises and bonuses and providing them with perks and privileges fit for kings and queens,” Gov. Rell said in a press release (“Governor Rell Reconstitutes Connecticut Student Loan Foundation Board, Orders Sweeping Changes,” March 13, 2009).

The student loan foundation has lost $24.5 million over the past five years, state auditors found, and its deteriorating finances have led to the elimination of 66 positions and a foreclosure lawsuit on its headquarters.

But despite its precarious financial situation, auditors said, the foundation continued to spend excessively on large raises and bonuses for top executives, costly golf club memberships, and lavish holiday parties. The company also spent money on limousine rentals, tickets to sporting events, and a satellite car radio system for the foundation’s president, Mark Valenti.

In their report, auditors said the student loan agency incurred expenses “that appear to be far more for the benefit of those in management than for the operation of the foundation.”

Valenti has challenged the auditors’ findings, saying in a letter to the governor that auditors’ lack of understanding about the foundation’s business model led them to construct a “misleading picture” of the foundation (“‘Holy Mackerel’ is One Lawmaker’s Response to Student Loan Foundation Chief’s Employment Contract,” Journal Inquirer, March 13, 2009).

In a letter Gov. Rell sent to Michael Meotti, the commissioner of the state’s Department of Higher Education, Rell said she is taking immediate corrective actions to address the mismanagement outlined by auditors and has appointed six new board members to the foundation, including a new chairman of the board.

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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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Kentucky Student Loan Provider Is Out of Money

Student Loan Girl — Wed, 13 Aug 2008 21:08:00 GMT

The Kentucky Higher Education Assistance Authority, the state agency that provides college loans to students attending colleges and universities in Kentucky, will “effectively run out of money” Friday while it waits to receive a $50 million loan from the federal government on August 21, reports the Lexington Herald-Leader (“Student Loan Agency to Run Out of Money,” Aug. 13, 2008).

The one-week funding shortage may temporarily inconvenience KHEAA’s student loan borrowers, some of whom will not likely receive their student loans before classes begin as early as August 18 at some schools.

KHEAA, also known as The Student Loan People, has been in communication with the financial aid offices of affected universities, asking them to be patient until the $50 million “bridge loan” from the government arrives. With the loan, the KHEAA will issue $35 million in financial aid to 16,000 students, says James Ackinson, KHEAA’s executive vice president.

“The issue will not delay or prevent any of our students from beginning classes,” says Shelley Park, director of financial aid at Eastern Kentucky University, which begins classes August 25. Students who rely on their student loans to buy textbooks will get school-issued vouchers to cover the cost until they receive their KHEAA-issued student loans and can repay the school.

By Friday, when the KHEAA will temporarily run out of money, the state loan agency will have issued $40 million in loans to 18,000 students since July 1.

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