Senators Go After Non-Profit Student Lender

The Senate Finance Committee this week continued to scrutinize the non-profit loan sector, most recently seeking information from a Virginia-based student loan firm with a $30 million jet.

The committee learned of EduCap, a non-profit student loan provider through a recent Washington Post article.

The Post reported that the company “bought a Gulfstream jet worth about $30 million that [Chairman Catherine B. Reynolds] sometimes uses to fly friends and relatives around the world” and that Reynolds “has given more than $9 million to a separate nonprofit company run by her husband and paid her $1 million in annual compensation.”

EduCap challenged the Post article in a statement, saying it had helped more than 350,000 students since the 1980s, providing more than $150 million of its own capital to cover the cost of defaulted loans. "As a good and proper nonprofit, we bring more competition and choice to students and their families every day," the company said.

The Finance Committee sent a letter Monday to Reynolds demanding the firm justify its non-profit classification that entitles it to certain tax benefits. The letter from committee chairman Max Baucus (D-Montana) and ranking Republican Sen. Charles E. Grassley (R-Iowa), gave EduCap 30 days to provide documents explaining and defending its non-profit status, including how it sets loan rates, approves customers, and spends money.

Reynolds earlier told the Post that her organization’s non-profit status is allowed by U.S. law, and that anyone expecting an accounting of EduCap’s status should instead “take it up with Congress.”

It is unclear if EduCap will comply with the Committee’s request.

The Senate Finance Committee has become a keen watchdog of perceived impropriety in the student loan industry of late, following revelations of questionable activity, including Sallie Mae and alleged kick-backs to colleges. The committee is also investigating the non-profit status of hospitals, saying some aren’t providing enough charity care to qualify for non-profit status.