EduCap: Difference between revisions
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==Criticism over use of funds== |
==Criticism over use of funds== |
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In 2002 and 2007, ''The Washington Post'' published critical reports about EduCap, focused on claims of high interest rates |
In 2002 and 2007, ''The Washington Post'' published critical reports about EduCap, focused on claims of high interest rates—"with variable effective rates as high as 18 percent"—and use of funds, including the purchase of a Gulfstream jet and generous executive salaries.<ref name=Montgomery/><ref name=Paley/> According to the ''Post'', in 2007 EduCap paid Catherine Reynolds about $1 million per year in compensation. Reynolds stated that financial benefits were "in accordance with normal business procedures" and the company's operations complied with Treasury Department rules.<ref name=Paley/> The newspaper, and later ''CBS News'', reported that loan industry watchdogs had questioned EduCap's non-profit status and the company was under review by the [[Internal Revenue Service]].<ref name=Paley/><ref name=Attkisson>{{cite news|author=Sharyl Attkisson |title=Loan Charity's High-Flying Guests Exposed |url=http://www.cbsnews.com/stories/2009/03/03/eveningnews/main4841768.shtml |date=May 26, 2009|work=CBS News|accessdate=November 20, 2011}}</ref> Following the 2007 article, the organization's operations were investigated by the Senate Finance Committee.<ref>{{cite news |title=Senate Seeks Student Loan Firm's Data |author=Valerie Strauss and Amit R. Paley |url=http://www.washingtonpost.com/wp-dyn/content/article/2007/07/23/AR2007072301908.html |newspaper=The Washington Post |date=July 24, 2007 |page=A08 |accessdate=March 13, 2012}}</ref><ref name=Attkisson/> In response to the ''Post'', EduCap executive George Pappas said that the article had "misled readers" regarding interest rates paid by students and stated: "Less than 4 percent of EduCap's loans go to people who pay the higher rates. That's because those people are more than 24 times more likely to default on their loans."<ref name=Pappas/> |
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==References== |
==References== |
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Revision as of 22:43, 2 April 2012
| Formation | 1987 |
|---|---|
| Purpose | Student loan provider |
| Location | |
President | Catherine B. Reynolds |
EduCap is an American private non-profit student loan company comprising three organizations: EduCap, Loan to Learn and a charitable fund operating as the Catherine B. Reynolds Foundation.[1] EduCap was established in 1987 and offers alternative student loans under the brand name Loan to Learn. Its loans are aimed at students who do not qualify for federal financial aid. The company has been criticized in the media for its use of funds and relatively high interest rates, compared to federal loan programs, however EduCap has maintained that it follows normal business procedures and its higher interest rates apply only to a small number of high risk borrowers.
History and operations
From the early 1980s, increasing tuition costs created demand for more funding than could be provided by federal aid programs.[2] In 1987, Father John Whalen, a Catholic priest and chief executive of the Consortium of Universities of the Washington Metropolitan Area, founded a private non-profit loan program to provide funding for college and prep school students who did not qualify for government subsidized financial aid.[3]
Whalen's program created a new model based on financing student loans with the proceeds from sales of municipal bonds. He won approval from the Washington D.C. Council to issue municipal bonds on behalf of colleges in the area, and then used the funds from the sale of the bonds to offer low-cost loans. The program was initially directed at universities in Washington D.C., and Whalen later started a company called University Support Services to offer the program nationally. This company operated using the model Whalen developed: it sold bonds to investors, used the revenue for loans, and funds from repayment and interest on loans were used to repay bond investors and cover operational costs. In the late 1990s, University Support Services was renamed EduCap.[2]
In 1988, Catherine Reynolds (then Catherine Dunlevy) joined EduCap, first as comptroller,[2] and became the company's president later that year.[4] EduCap was in debt and "struggling" in 1988, when Reynolds was hired; according to The Washington Post, she helped to "perfect" the company's loan financing concept.[4] The model of providing private non-guaranteed student loans developed by EduCap was adopted by other companies and later Sallie Mae, leading to the growth of an alternative student loans sector, where previously the market had been dominated by federal programs.[1]
In 1993, EduCap established a for-profit company, Servus Financial, to provide administrative services to the organization including collection of payments.[2] Wells Fargo & Co. acquired Servus and some of EduCap's assets in 2000.[5] EduCap's initial investment in Servus was $61,000, and its share in the company had grown to $48 million by the time of its sale.[4]
The company provides its loans under the brand name Loan to Learn.[1] It offers alternative student loans, which are not guaranteed by the government if the borrower does not repay. In order to mitigate the risk taken on by lending to students with no credit history, interest rates are higher than for federally-backed loans.[2] According to company executive George Pappas, in 2007 EduCap's average interest rates were approximately 10.5 percent.[6] Also in 2007, The Washington Post reported that although EduCap did not state its recent annual default rates, the company "said the rate has generally been about 1 percent over the company's 20-year history." By 2007, the company had provided 350,000 private student loans.[1]
Catherine B. Reynolds Foundation
The Catherine B. Reynolds Foundation was established by EduCap in 2001 as a charitable foundation,[1] financed by the sale of EduCap's for-profit affiliate, Servus, and funds from outstanding student loans.[4] The Foundation operates as part of EduCap and Catherine Reynolds serves as its chairman and chief executive.[1] Since its establishment, the Foundation has donated over $100 million to beneficiaries including the D.C. College Access Program, the Kennedy Center and to create endowed fellowships at Harvard University and New York University.[7]
In July 2007, the The Washington Post reported that EduCap shares office space and staff with the Academy of Achievement, which is "one of the largest beneficiaries" of the Catherine B. Reynolds Foundation.[1] As of 2007[update], the foundation had donated at least $9 million to the Academy, which then paid Catherine Reynolds' husband Wayne Reynolds at least $1.7 million through his for-profit ASC Management Co.[1]
In 2009, the CBS program 60 Minutes reported that Catherine Reynolds withdrew a donation of $38 million from the Smithsonian Institution in 2006 following criticism of her proposal for a "Hall of Achievement" exhibition. According to Reynolds, "the curators were opposed to any exhibit honoring individuals". She instead gave $100 million from the Catherine B. Reynolds Foundation to the Kennedy Center for the Performing Arts.[8]
In 2011, The Washingtonian named Catherine Reynolds one of its "Washingtonians of the Year" for her charity work, including a donation to install recreational facilities at Jill's House, a respite care center for disabled children.[7]
Criticism over use of funds
In 2002 and 2007, The Washington Post published critical reports about EduCap, focused on claims of high interest rates—"with variable effective rates as high as 18 percent"—and use of funds, including the purchase of a Gulfstream jet and generous executive salaries.[4][1] According to the Post, in 2007 EduCap paid Catherine Reynolds about $1 million per year in compensation. Reynolds stated that financial benefits were "in accordance with normal business procedures" and the company's operations complied with Treasury Department rules.[1] The newspaper, and later CBS News, reported that loan industry watchdogs had questioned EduCap's non-profit status and the company was under review by the Internal Revenue Service.[1][9] Following the 2007 article, the organization's operations were investigated by the Senate Finance Committee.[10][9] In response to the Post, EduCap executive George Pappas said that the article had "misled readers" regarding interest rates paid by students and stated: "Less than 4 percent of EduCap's loans go to people who pay the higher rates. That's because those people are more than 24 times more likely to default on their loans."[6]
References
- ^ a b c d e f g h i j k Amit R. Paley and Valerie Strauss (July 16, 2007). "Student Loan Nonprofit a Boon for CEO". The Washington Post. Retrieved November 20, 2011.
- ^ a b c d e Valerie Strauss (October 28, 1997). "Executives Reap Rewards From Nonprofit Loan Firm's Success". The Washington Post. Retrieved February 24, 2012.
- ^ Associated Press (April 12, 1987). "Loan Program for Affluent Students Initiated". The New York Times. Retrieved February 24, 2012.
- ^ a b c d e David Montgomery (April 9, 2002). "Inspiration Investor; For Entrepreneur/Philanthropist Catherine Reynolds, Achievement Is Both End and Means". The Washington Post. p. C01.
- ^ Dee DePass (April 7, 2000). "Wells Fargo completes Servus acquisition". Star Tribune. Retrieved February 24, 2012.
- ^ a b George C. Pappas (July 27, 2007). "A Leader In Student Loans". The Washington Post. p. A11. Retrieved March 13, 2012.
- ^ a b Leslie Milk (January 11, 2012). "Washingtonians of the Year 2011: Catherine Reynolds". Washingtonian. Retrieved March 1, 2012.
- ^ Leung, Rebecca (February 11, 2009). "Who Is Catherine Reynolds?". CBS News. Retrieved November 21, 2011.
- ^ a b Sharyl Attkisson (May 26, 2009). "Loan Charity's High-Flying Guests Exposed". CBS News. Retrieved November 20, 2011.
- ^ Valerie Strauss and Amit R. Paley (July 24, 2007). "Senate Seeks Student Loan Firm's Data". The Washington Post. p. A08. Retrieved March 13, 2012.