There are very few people that I like dealing with less than the folks who administer my student loans for law school. Undergrad, I managed just fine. But when I moved to Pennsylvania, I was forced to deal with the Pennsylvania Higher Education Assistance Agency (PHEAA). If you�ve ever dealt with PHEAA, you know they�re a mess. They�re disorganized and rude. And it certainly didn�t help their reputation when, in 2006, details emerged of alleged overspending on the likes of massages, golf outings, expensive cigars and falconry lessons for board members and millions of dollars in bonuses.
Then Governor Ed Rendell (D) promised a clean-up of the quasi-public agency. It apparently didn�t come fast enough.
The agency�s quarterly report has revealed that it is paying more than $12 million to the IRS to settle an investigation into proceeds from its tax-exempt bonds. The investigation focused on a violation of federal tax laws intended to prevent tax-exempt borrowers, like PHEAA, from profiting from bond proceeds. Tax-exempt organizations which make money this way are supposed to turn the profit over to the government. PHEAA, apparently, didn�t do this.
The agency had initially set aside $3 million to pay a potential fine but it appears that the IRS felt that the violations warranted a larger penalty. The IRS won�t comment on the specifics of the matter and PHEAA remains rather tight-lipped.
But this just isn�t about PHEAA. Other state student-loan agencies have been similarly targeted; the Vermont Student Assistance Corp. has announced that it is in similar negotiations with the IRS. The IRS is concerned about how these agencies are treating the loans � and what kind of profit they�re making as a result. As the audits heat up, it will be interesting to see how the industry responds.
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