Roundup: Week of September 24 – September 28

Skirmishing Over Sallie Mae Deal Intensifies

Fighting intensified last week over the proposed buyout of the student loan giant Sallie Mae. A group of investors that had agreed to buy the company are now saying they want out of the deal, arguing that instability in the credit markets and pending lending-subsidy cuts made the terms of the original deal unacceptable. Sallie Mae officials vowed to sue the investors if the deal unraveled. While some in the news media declared the deal dead, Higher Ed Watch believes that there is a lot of posturing going on here, in an effort by the investors to drive down the price of the buyout. In a written statement, the buyers themselves said they are “open to discussing a revision of the transaction.” Our prediction is that this deal will be done at a slightly lower price.

More Problems for PHEAAs Leadership

Dick Willey, the current CEO of the Pennsylvania Higher Education Assistance Agency (PHEAA), announced that he will retire at the end of the year, the Pittsburgh-Tribune Review reported Wednesday. Willey and PHEAA, a non-profit lender and guarantee agency, have been heavily criticized for their role in exploiting a subsidy program that guaranteed providers a 9.5 percent rate of return. In addition, the agency has come under fire for spending large amounts of its revenue on perks and executive bonuses instead of increased financial aid or better loan deals for students. In March it was revealed that the agency had spent over $860,000 at eight high-priced resorts over a five year period, lavishing money on board members for falconing lessons, cigars, and spa treatments. Willey has also profited handsomely, receiving a $180,000 bonus this year that brought his salary to $469,000. Scott Miller, a PHEAA lobbyist in Washington, D.C., told the Chronicle of Higher Education that the controversy surrounding the agency played a role in his departure. “I dont know if he would have made a different decision had the controversies not come along,” Miller said, “but no one can deny that it played a role.”

Willey’s predecessor, Michael Hershock, was also in the news this week because of his compensation. Despite being retired for nearly five years, Hershock is receiving a nearly $147,000 annual salary from a foundation associated with PHEAA, the Pittsburgh Tribune-Review reported Wednesday. When combined with his state pension and benefits, Hershock is being paid nearly $370,000 a year. In addition, the foundation, which is located in PHEAAs headquarters, provides Hershock with a $41,000 vehicle, $120,000 in office furnishings and equipment, and covered $22,000 in travel expenses, the paper reported.

Student Debt Grows 2x Faster Than Starting Salaries, Study Finds

Student loan debt has been rising twice as fast as starting salary offers for graduating college seniors, according to a report released this week by the Project on Student Debt. In 2006, students graduated with an average debt of $19,646, approximately 8 percent more than in 2005. The report’s authors warn, however, that the total is understated because colleges often provide incomplete and unreliable data about borrowing on their campuses. They estimate that actual debt levels are closer to $21,000. The study also disaggregates debt levels by states and institutions, and found that students graduating from colleges in the District of Columbia have the highest average debt ($27,757), while graduates from colleges in South Dakota are the most likely to borrow loans to pay for college (84 percent). The report calls on the federal government to start collecting data on private student loans so that colleges and researchers have “the tools they need to more accurately track student debt levels.”

Senators Turn Focus to College Endowments

At a hearing on Wednesday on hedge funds, several members of the Senate Finance Committee spoke out in favor of a proposal that would require wealthy colleges and universities to spend a minimum percentage of their endowments each year a move which we at Higher Ed Watch strongly support. Such a mandated spending target would put colleges more in line with other types of tax-exempt foundations. An aide to Sen. Charles Grassley of Iowa, the ranking Republican on the committee, told Inside Higher Ed that there is no pending legislation on the issue, though the committee plans to look into the proposal at a later time.

Bush Signs Reconciliation Bill

As expected, President Bush on Thursday signed into law the College Cost Reduction and Access Act, which will cut the interest rate on federally subsidized student loans in half and provide a major boost to the maximum Pell Grant. The measure, which slashes lender subsidies to pay for the aid increases, will also create a groundbreaking pilot auction program in which lenders will have to compete for the right to make federal loans for parents and graduate students. “Eighty percent of the fastest growing jobs require a Higher Education degree,” Bush said. “Now people from all walks of life can afford an education. This signing shows the federal government will be standing with [students].”