DePasquale: To save money and improve efficiency, PHEAA should bounce lawmakers on its board

Pennsylvania’s quasi-public student loan agency has saved $74 million in the decade since a state audit identified wasteful levels of spending on travel and executive compensation, the state’s top fiscal watchdog said Thursday.

But what’s the next step the Pennsylvania Higher Education Assistance Agency, or PHEAA, can take to reduce student loan debt in Pennsylvania, according to auditor General Eugene DePasquale?

Removing state lawmakers from its board.

In a special report his office released Thursday, DePasquale called on PHEAA to cut in half the number of legislators serving on its board, which meets monthly and approves annual grant amounts for its student financial aid programs.

DePasquale said their seats should go instead to executives from higher education and finance, or to students and parents who can advocate for borrowers.

He argued that having a wider range of perspectives on the board would deliver better outcomes to Pennsylvania students, who shoulder some of the highest college debt in the nation.

“We still think the board is too top heavy with legislators,” DePasquale told reporters on a conference call Thursday. “We believe that this has effectively kept the board from becoming more diverse, and from including members with relevant, appropriate professional experience.”

PHEAA’s 20-member board currently consists of 15 state lawmakers, with one vacant seat that’s reserved for an appointee from the Senate Republican caucus. DePasquale said Thursday that makes it “an outlier” among appointed boards in state government.

The recommendation DePasquale issued Thursday echoed one made in a 2008 audit by then-Auditor General Jack Wagner, who argued that reducing the number of lawmakers on PHEAA’s board would boost its transparency and accountability.

Wagner’s audit uncovered hundreds of millions of dollars of runaway costs for executive salaries, bonus payments, employee events, and advertising expenses – all made possible “by a culture that awarded those at the top instead of devoting taxpayer-funded resources to help Pennsylvania’s vulnerable, and promising, students,” according to DePasquale.

DePasquale said Thursday that the student loan and financial aid agency has made strides since then to control its spending, generating savings it could invest back into more loan assistance for students.

But he warned that a poor board structure could permit the agency to backslide.

DePasquale also recommended Thursday that Pennsylvania follow the lead of five other states and appoint a state-level student loan ombudsman.

This watchdog, whom DePasquale said should work in the state Treasurer’s Office, would advocate for borrowers in policy debates and help them “navigate the increasingly complex world of student loans.”

Founded more than 50 years ago to award low-interest college loans to Pennsylvania students, PHEAA has grown into one of the largest student loan administrators in the nation. It’s attracted national scrutiny from lawmakers – and ire from borrowers – for its role administering a national public loan service forgiveness program.

DePasquale said Thursday his office was monitoring that program and may have recommendations for ways to improve it, but did not include it in his most recent report.

Created by Congress and run by the U.S. Department of Education, the Public Service Loan Forgiveness program rejected nearly all of the nurses, teachers and other public-service borrowers who sought loan forgiveness in its first round of applications last year.

In December, PHEAA renewed its $1.2 billion contract as the program’s sole loan servicer.

The agency says the deal provides crucial revenue to supplement its appropriation from the state Legislature, allowing it to fund its student grant programs.

But awards from the state’s hallmark fund, the Pennsylvania State Grant program, have not increased in value in the last four years, even though the number of students seeking them has declined.

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