PHEAAs Split Personality
The Pennsylvania Higher Education Assistance Agency (PHEAA) has a split personality complex, complete with an uncanny ability to assume different identities at a moment’s notice. One day, the student loan giant claims to operate like a government agency. The next day, it wants to be treated like a private business. The public confusion about the true nature of PHEAA is therefore understandable.
The manner in which PHEAA chooses to characterize itself depends on the situation. The most recent example is the agency’s refusal to comply with legitimate requests from three media outlets for information about how PHEAA spends taxpayer funds, including public records such as expense receipts and travel vouchers. These requests were spurred by reports that PHEAA officers spent nearly $1 million on retreats for its board members and “business partners” in posh locations such as Nemacolin Woodlands Resort in Fayette County and California’s Napa Valley. PHEAA has argued that providing the requested information would compromise its competitive position by making sensitive data about its business practices public knowledge.
If PHEAA were a private business, the argument for confidentiality would have merit—but it is not. In fact, PHEAA owes its very existence to Pennsylvania taxpayers. A substantial portion of the funds the agency disburses to students and institutions is provided through an annual General Fund appropriation, which is transferred to PHEAA’s Higher Education Assistance Fund. While PHEAA likes to claim that its operations, salaries, bonuses, board retreats, and advertising campaigns are not paid for by taxpayers, the “business earnings” that pay for such activities are effectively public funds, a fact that Rep. Elinor Z. Taylor (R-Chester), chairperson of PHEAA’s Board of Directors, has acknowledged in the past.
PHEAA’s attempts to characterize itself as operating in the manner of a private business are further undermined by the composition of its board of directors, the vast majority of whom are lawmakers appointed by legislative leaders. Its other board members are appointed by the Governor. The dominant presence of elected and appointed public officials obliges the agency to disclose public records to the media and be fully accountable to taxpayers.
PHEAA cannot be allowed to claim both public sector and private sector status. If the agency is to continue receiving taxpayer money for its programs and retain legislators and political appointees as board members, then it must open its books and not keep secrets from Pennsylvania citizens about its spending on retreats and other “business activities.” If PHEAA is unwilling or unable to explain to the public how and why it is spending public funds, then it should take the opposite approach and become a private business, which can spend investors’ or shareholders’ money without the need for direct taxpayer oversight.
PHEAA should heed the example set by Sallie Mae, the student loan provider that made a $1 billion proposal to run PHEAA’s operations last year. Sallie Mae began its life as a government-chartered company and enjoyed a number of advantages in the student loan market due to its unique status in the student loan industry. However, in the late 1990s, Sallie Mae agreed to shed its government charter, returned hundreds of millions of dollars to taxpayers, and made the transition to a fully private company—and it has since become larger and more successful than it was (or could have been) during its time as a government-sponsored enterprise.
Instead, PHEAA wants to have it both ways. PHEAA wants to be able to spend taxpayer money on luxury travel and exorbitant executive salaries, yet flout the disclosure rules that apply to other agencies of Pennsylvania government. PHEAA pays no taxes, yet spends public funds lobbying to impose a new tax on the taxpaying Sallie Mae—to the tune of $300 million annually—because, PHEAA argues, Sallie Mae enjoyed an “unfair competitive edge” versus private and non-profit lenders when it was a government-chartered enterprise. Sadly, instead of leveling the playing field, PHEAA proposes to tilt it further towards its own “competitive edge” and raise the cost of college for millions of students in Pennsylvania and across the nation.
While there are important differences between how Sallie Mae formerly operated and the situation faced by PHEAA, it is conceivable that PHEAA could achieve similar results as a fully private company. The present situation, however, under which PHEAA cannot be held accountable by anyone—lawmakers, the media, or Pennsylvania taxpayers—is intolerable. Pennsylvania lawmakers need to cure the agency of its “split personality” syndrome and make it either a clearly public or clearly private entity. It can’t be allowed to continue to assume the identity that best suits itself at any given moment.
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Matthew J. Brouillette is president and CEO of the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.