How USA Group won Maryland's student loan business State agency handled guarantees previously

March 02, 1997|By David Folkenflik

Before USA Group can guarantee college loans for a state, it has to secure the right to do so. That right is awarded by each state government and requires the approval of federal regulators.

Maryland only recently switched to USA Group. In late 1993, Shaila R. Aery, then the state higher education secretary, looked toward the $30 million in reserves held by Maryland's state-run guarantee agency.

Aery told other state officials that the agency had opened the state to too much financial risk. But several associates said she sought to gain control of millions of dollars to spend on favored education initiatives.

Aery asked federal officials whether her department could keep some money if she arranged for a private guarantor, such as USA Group, to take over.

Larry Oxendine, a federal education official involved in overseeing college loans, told her no. He also rebuffed her offer to spend the money on new computers to attract colleges to direct lending. But the process of closing the state agency had already been put in motion; it was dissolved in 1995.

(Aery is now chief of staff for U.S. Sen. Barbara A. Mikulski, a Maryland Democrat. Aery did not respond to written and telephoned requests for comment.)

Many prominent Maryland public officials backed USA Group's bid to become the state's guarantee agency. The firm's computer systems already ran the checks on Maryland college students, and its employees chased after delinquent loans.

In Washington, however, distrust prevailed. Federal officials believed that USA Group had spun off smaller companies from USA Funds, the guarantee agency, in an effort to trap additional federal dollars. These related firms often did work that USA Funds used to perform itself: same people, different firms.

Federal officials concluded that they were paying two administrative fees -- one to USA Funds, and one to a related company -- where they once paid one.

In 1994 and early 1995, there was a series of tense exchanges captured in letters obtained by The Sun. In the bland language of bureaucrats, the Education Department accused the company of ripping it off. In the measured communications of corporate chiefs, USA Group officials defended their procedures and said that the department was lying.

Finally, the company agreed to drop the fees paid to the related company for Maryland so it could win the state's business.

Pub Date: 3/02/97

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