A new state audit claims problems with how CollegeInvest manages some of its scholarship and loan forgiveness problems, along with some questionable administrative expenses and problematic financial controls.
CollegeInvest is an agency of the state Department of Higher Education but has its own board and operates largely autonomously in running student loan programs, 529 college savings plans and some scholarship and loan forgiveness programs.
The audit dealt only with scholarships and loan forgiveness.
“Overall, we found that CollegeInvest could significantly improve management of and participation in its scholarship and loan forgiveness programs,” the audit concluded.
Specifically, the audit found that the Early Achievers Scholarship, with assets of $67 million, didn’t follow its stated policy of giving 5 percent of its value in scholarships. In fiscal year 2009, the first year of scholarships, the program gave only $91,000 to 76 students, a distribution of .1 percent. The audit projected the program wouldn’t meet its goals through fiscal year 2013.
Auditors concluded the program lacks controls to ensure that recipients meet requirements, puts administrative burdens on colleges and has high administrative costs.
The program is designed to provide college financial aid to younger students who make a commitment to do well in high school. Students must be Pell Grant eligible (meaning lower income) and can receive up to $1,500 a year. Eligible students must have had a 2.5 GPA and have graduated from a Colorado high school.
In an interview Wednesday with EdNews, Debra DeMuth, director of CollegeInvest, said, “We were disappointed in the number of students that were eligible for the program.”
But, she said, the complexities of setting up an outreach program aimed at 8th and 9th graders and other obstacles have slowed things down. The program was created in 2005 but the first scholarships were awarded in the 2008-09 school year.
DeMuth said participation was hampered because the program initially required eligible students to meet the standardized Higher Education Admissions Requirements, which wasn’t necessary for student who attends open-admissions institutions such as community colleges. The program also originally was set up as a “last-dollar” program, meaning college financial aid officers could tap the program only after they had used all other possible aid sources for a student. Both those limitations have been removed, she said.
She said it’s also been difficult to track eligible students, particularly after they leave high school. “We struggle with effective ways to reach out to these students … to make sure they sign up and get these dollars.”
The audit also faulted CollegeInvest for investing all but $10 million of the Early Achievers trust fund trust fund in the agency’s student loans. The agency said that was done to put money in more conservative investment. But, the auditors said, “It appears the primary purpose of this decision was to bolster CollegeInvest’s student loan operations by providing liquidity,” adding the action “raises significant conflict-of-interest concerns.”
DeMuth Wednesday defended that investment strategy, saying the trust fund earned 2.9 percent a year on the loan investments while equity investments lost 41 percent and even fixed-income holdings lost 2.7 percent. “I think it was a very wise and prudent decision.”
The audit also found fault with administration of Service Scholarships and Opportunity Scholarships, which are awarded by lottery. From fiscal year 2005 to 2009 CollegeInvest failed to give out 330 of the 565 scholarships available, which made the odds of winning less than was stated in promotional materials. “The program’s advertising may have been misleading,” the audit said.
Auditors also criticized handling of some loan forgiveness programs, noting for instance that a program for nursing teachers only involved 11 recipients since 2007. The program “does not effectively target potential candidates” and in some cases “requires that applicants hold a CollegeInvest loan to participate, which presents a barrier to participation.”
DeMuth noted that loan forgiveness programs are difficult administer because her agency has to rely on outside parties, like teacher education programs, to get the word out to potentially eligible students. She also said that such programs may not have much of a future, giving changing federal requirements and lack of state funding to support them.
Finally, the audit examined more than $12 million in non-personnel administrative expenses in 2008 and 2009, criticizing donations to outside groups (the agency said they were sponsorships), meal reimbursements that didn’t fall within state guidelines, donations made to groups with which CollegeInvest board members had ties, fees paid to an outside lobbyist and promotional gifts of golf clubs (about $1,000 total) made to outside financial advisors.
The audit found that about half of some 40 administrative expenses examined didn’t have adequate documentation or approvals. “This significant error rates raise concerns about CollegeInvest’s management of administrative expenses.”
DeMuth said CollegeInvest works hard to get appropriate value for its sponsorships and that she feels the auditors were overly broad in criticizing the agency’s financial controls. She noted that annual financial audits for the last three years have found no problems with CollegeInvest procedures. She also noted that outside lobbying fees are allowed by a gubernatorial executive order, although clarification will be sought from the attorney general.
The audit made 10 recommendations, all of which are to be implemented by June 2010. The agency agreed or partially agreed with all 10.
The audit was released Monday at the monthly meeting of the Legislative Audit Committee.
According to The Associated Press, lawmakers weren’t happy. “I sense that the board is not really doing its job in monitoring how well this program is working,” said Sen. Dave Schultheis, R-Colorado Springs and committee vice chair.
“It seems like more money has been put into running the organization than getting kids in school,” said chair and state Rep. Dianne Primavera, D-Broomfield, according to AP.
CollegeInvest receives no tax funding. It has net assets in all funds of $3 billion and funds its operations with profits on student loans, fees on college savings plans and investments.
The agency’s future is cloudy, given legislation pending in Congress that would centralize student loans in the federal government, eventually putting agencies like CollegeInvest out of the loan business.
DeMuth noted CollegeInvest is one of only three state loan agencies that also run a 529 savings plan, which wouldn’t be affected by the legislation. “For us it [the bill] would end part of our business, but it wouldn’t put us out of business. … “I think the public partnerships [agencies like CollegeInvest] have been very positive for students. … You can’t replace that local presence and outreach from Washington, D.C.”
The study was done by state auditors with the help of Buck Consultants.
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