Legislators audit loan company

Nonprofit group that oversees millions of student loans faulted by state

By Leban Pelz
The Collegian

A company that manages $7 billion annually in federal funding for a million student loans every year in California has been targeted by the state with an audit.

Seventeen state senators and assembly members earlier this month requested the California Joint Legislative Audit Committee review of EdFund for the following: consistent underreporting of finances, abuse of contracting authority, questionable spending and hiring practices and lack of sufficient oversight.

The final claim is directed toward the California Student Aid Commission, which is responsible for the oversight of EdFund, a nonprofit auxiliary charged with managing Cal Grants and other student financial aid.

The independent audit began last week and is expected to be complete early next year, the office of Assemblywoman Wilma Chan (D-Oakland) said.

Chan’s office said the company selected to review EdFund’s structure is Public Works, while Market Value Planners will look into EdFund’s finances.

“This is a huge amount of money we’re dealing with,” Chan said. “We’re concerned the funds won’t be there in the future.”

Chan, one of the legislators who requested the audit, said some examples of EdFund’s potential misdeeds include many noncompetitive contracts awarded by the company in 2004, and a nine-member management team that received what she considers “extremely high bonuses.”

A previous, routine review of EdFund found that nearly a third of the 136 contracts it awarded in the fiscal year 2004 were noncompetitive. The San Francisco Chronicle reported in April that the company’s management team received nearly $500,000 in extra pay in 2001 and 2002.

Chan also cited instability among the company’s management. EdFund President Becky Stilling resigned earlier this month.

Another complaint against EdFund is its misrepresentation of available funds. Merriah Fairchild, a higher education advocate for the California Public Interest Research Group, said the last audit of EdFund found the company padded its cost reports to appear to have less money.

“This affects every student who receives a Cal Grant, every student who has been denied a Cal Grant because of lack of funding and every student with a loan,” Fairchild said.

She said this is also an issue for taxpayers, since EdFund uses billions in federal funding.

Chan’s office wouldn’t say exactly what the consequences of the audit might be for EdFund, or for the Student Aid Commission, but said changes will be made if needed.

“If the audit finds problems, they will be addressed,” Chief of Staff Rachel Richman said.

Jason Warburg, vice president of public affairs for EdFund, said the company’s only reaction is that it plans to fully cooperate with the audit.

“We get routinely audited about twice a year anyway, so we’re pretty familiar with the process,” he said.

Warburg said the last time one of these audits found anything negative was five years ago. He would not discuss any relationship between the audit and Stilling’s resignation.

Student reaction was mixed Tuesday at Fresno State. Senior criminology major Nicole Frazier, who has a Cal Grant and loans, said it is awful if what EdFund is being audited for turns out to be true. She said the state government doesn’t do enough.

Robert Peabody, a junior environmental sciences major, said the situation makes him nervous.

“If the audit finds out anything, I may have to pay back some of my loans earlier,” he said.
Still, Peabody said Sacramento does enough for students on loans.

“At least they’re doing the audit now,” he said.