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Move Over Car and Driver. EduCap Owns a Gulfstream IV?



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One of Tom Daschle’s problem areas is his relationship to EduCap. From today’s Times:

Mr. Daschle is still waiting for the Finance Committee to hold a hearing on his nomination. Members of the committee staff from both parties have been examining a number of other issues, including his relationship with EduCap, a student loan company.

Some members of the staff have also been asking whether Mr. Daschle should have registered as a lobbyist while working at the law firm Alston & Bird, which itself was registered as a lobbyist for EduCap and for many health care companies.

In his financial disclosure report, Mr. Daschle said he received compensation of more than $5,000 for providing “policy advice” to EduCap. The exact amount was not disclosed.

In reports to the Internal Revenue Service, EduCap says it does business as the Catherine B. Reynolds Foundation. The foundation is the principal underwriter of annual meetings held by the American Academy of Achievement, which has honored Mr. Daschle on several occasions.

In its report, the Finance Committee said its staff was still reviewing “whether travel and entertainment services provided to the Daschles by EduCap Inc., Catherine B. Reynolds Foundation” and the Academy of Achievement “should be reported as income.”

EduCap and the Reynolds Foundation could make for very colorful hearings, as this Washington Post piece from 2007 suggests:

July 16, 2007 Monday
Met 2 Edition

Student Loan Nonprofit a Boon for CEO;
Watchdogs Question Spending; Company Touts Benefit to Consumers

Two decades ago, a young accountant pioneered the now-$17 billion-a-year private student loan industry through a tiny nonprofit company with a noble goal: helping students pay for college.

The nonprofit company also has become a financial boon for the accountant, Catherine B. Reynolds, and her family. The McLean-based company bought a Gulfstream jet worth about $30 million that she sometimes uses to fly friends and relatives around the world. It has given more than $9 million to a separate nonprofit company run by her husband and paid her $1 million in annual compensation. And the nonprofit donates millions to her favorite charities, including $400,000 to her daughter’s private school.

Loan industry watchdogs question whether the company, EduCap, operates in the best interests of students and should retain its nonprofit status. As a nonprofit, EduCap is exempt from paying federal income tax as long as it claims to be serving a public good. But the company allows some students to borrow up to $50,000 a year, sometimes at 18 percent effective interest rates — terms that most financial experts urge borrowers to avoid. The Internal Revenue Service has been reviewing the business.

The loan company’s business practices — detailed in interviews with former employees and internal company documents obtained by The Washington Post — illustrate how the booming and some say largely unregulated private loan industry is creating tremendous wealth for some lenders. Experts say private loans also can pose financial risk for students in certain cases.

When Catherine Reynolds joined EduCap in 1988, it was a small tax-exempt company headed by a local Catholic priest at a time when most loans came from decades-old federal programs. But Reynolds, the child of working-class parents, saw that soaring tuition costs had created a huge demand for aid beyond the government’s programs.

The company was very successful, and in 2000, Wells Fargo, the financial services giant, purchased for more than $150 million a for-profit affiliate of EduCap that serviced its loans.

After the expiration of a non-compete agreement that accompanied the sale, Reynolds has returned to the business, and EduCap is once again one of the few nonprofit lending companies in the country.

Several associates said Reynolds has recently been considering new business opportunities, and company executives declined to say whether Reynolds will remain in the loan industry.

The IRS has been reviewing the company’s financial arrangements, according to people with direct knowledge of the matter. Under those arrangements, one legal entity, EduCap, operates under three different names: EduCap, the Catherine B. Reynolds Foundation and Loan to Learn, the brand under which EduCap loans money to students.

The exact nature of the IRS inquiry is unknown. Reynolds declined to comment but said EduCap complies with the law. IRS spokesman Michael Devine also declined to comment.

Richard Lee Colvin, a loan industry expert at Columbia University’s Teachers College, said Reynolds “has acted in the nonprofit space very much as a for-profit company.”



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