Higher Ed Watch

Higher Ed Watch has learned that Washington, D.C. socialite Catherine Reynolds, the chief executive officer of EduCap, a non-profit company that used to market high-cost private student loans under the brand name Loan to Learn, is in serious discussions about making a comeback in the private student loan business.

According to Congressional sources, Reynolds and her associates have been busy in recent months making the rounds on Capitol Hill -- visiting key lawmakers and their staffs as well as executive branch officials -- to gauge how policymakers would react if Reynolds were to move forward with her plans to re-enter the private student loan marketplace.

We understand that the reception has been underwhelming at best. That’s not too surprising given the controversy that surrounded Reynolds and her student loan company when she decided to suspend its operations in the summer of 2007.

At the time, both the Senate Finance Committee and the Internal Revenue Service (IRS) had begun examining allegations -- made most prominently in a front page article in The Washington Post and later the CBS Evening News (see here and here)-- that Reynolds had abused her company’s non-profit form by using benefits derived from its tax-exempt status to enrich herself and her family and to raise her standing in the world of philanthropy rather than to serve the public good. [It’s unclear what happened with these investigations. Republicans used findings from the Senate committee’s examination to help derail former Senator Tom Daschle’s nomination to be President Obama’s Secretary of Health and Human Services. But a promised final report on the committee’s findings has never been released.]

From the start of Higher Ed Watch in the fall of 2006, we played a pivotal role in exposing concerns about the way in which Catherine Reynolds’ private student loan company was operating. Our earliest posts looked at how the company, through its marketing material, was pushing financially-needy students to borrow private loans rather than take out lower-cost and less-risky federal loans. We also revealed efforts by Reynolds to woo financial aid administrators and promote her private loan product by inviting them to participate in a four day, all-expense paid trip to the Caribbean West Indies. The story was picked up by the national media and the trade press, and within three days of its initial publication, the company canceled the trip.

In the summer of 2007, we ran a series of posts questioning the company’s tax-exempt status, considering that it did not seem to provide any benefits to students that were superior to those they could receive from for-profit lenders in the private student loan market. In fact, we found that the private loans it was marketing were as expensive, and in many cases, even more expensive than those of its for-profit competitors. We also found that the company was lending to better-risk students -- that is those who tended to have higher credit scores than the population of students who borrowed private loans from its largest for-profit rivals.

We also fleshed out allegations -- first made in The Washington Post article -- that Reynolds had used much of the revenue that the tax-exempt company earned off of the backs of borrowers to raise her stature in the world of philanthropy and to hobnob with the rich and the famous. And finally, we shared complaints Loan to Learn borrowers sent to us about their experiences with the company, and comments we received from former EduCap employees confirming the validity of those complaints.

In their talks with policymakers, Reynolds and her surrogates have signaled that she is ready to turn over a new leaf, offering student much more generous terms and conditions than she has in the past. These are nice sentiments. But we believe that her track record speaks for itself.

This is not, however, a done deal. Her decision of whether or not to re-enter the private student loan business appears to rest largely in the hands of Congress. We’ll explain more in our next post. Stay tuned.