By: Gaurav Bhola, MSM, Managing EditorGaurav Bhola, Managing Editor
The student loan scandal came to the forefront again this month with revelations that a Pennsylvania non-profit acted in bad faith with student loan funds. The top executive at Pennsylvania Higher Education Assistance Agency (PHEAA) received huge bonuses, in one instance over $400,000. The question is why a non-profit organization, whose funds should to be going to students to pay for college education went into the pockets of executives.
As a non-profit, majority of PHEAA’s, money should be invested in the university student’s future. But this didn’t happen. Instead chunks of money went to pay for bonuses of executives. Even, Pennsylvania’s Governor Edward Rendell questioned the merits of such large disbursements.
PHEAA responded to queries regarding the bonuses paid out the executives, as being in full alignment with the company’s incentive plan. A total of $900,000 in compensation was doled out, over $469, 000 given to now former President Dick Wiley. A local newspaper questioned whether the bonuses were justified, even though the company has done well the past few years. The good performance, the newspaper says was due to a reverse money laundering scheme rather than anything arising out of good executive management.
The scheme worked as such:
A college and university financial aid office steers school students to PHEAA or other school loan lenders, like Sallie Mae. The federal government guarantees student loans against default and provides the private student loan lenders with subsidies as an incentive to provide school loans; this is in addition to the student’s loan interest rate payments.
In the 1980s, Congress gave subsidies that guaranteed loan lenders a 9.5% rate of return, but the 9.5% guarantee ended by 1993.
However, PHEAA took the payments college students made pre-1993 and used that money to make post-1993 student loans to other students. As such, PHEAA proffered that the 9.6% guarantee applies to the post-1993 loans.
Surprisingly, the government continued paying the extinct subsidy without questioning the merits of the claims.
PHEAA was not alone in the fraud committed against the American taxpayer, Nelnet, another big student loan lender was involved. Herein, as soon as the scheme was brought to the attention of Congress, it shut down any further payments on the 9.5% method on new loans issued after 2004.
Also, the Inspector General is investigating the legality of the scheme prior to 2004 and insisting Nelnet pay back past claimed subsidy money earned as a result of the 9.5% scheme.
As a result of the controversy, PHEAA President Dick Wiley stepped down on the 10th of this month. PHEAA is suppose to maintain the highest degree of professionalism and integrity, its inimitable role as a nonprofit student loan lender should always be focused on the best interests of students and their families; in many cases it is parents and family members who pay off the college student loans. The future of action against PHEAA by the federal government is unknown but their unethical practices shouldn’t go unpunished. Taking advantage of students, their families, and the American taxpayers shouldn’t be tolerated.
