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Student Loan Nonprofit a Boon for CEO

Pappas said Reynolds always reimburses EduCap for the cost of friends and family who fly aboard the company plane. But some question whether a nonprofit company should own such an expensive jet.

"The airplane actually belongs to the struggling college students of America," said Bob Shireman, executive director of the Project on Student Debt. "Catherine Reynolds is misusing this nonprofit to benefit herself instead of student borrowers."

Nonprofit Benefits Family

Although Reynolds is a high-profile figure in the student loan industry, she also has become a prominent fixture in Washington's social and political circles because of her recent philanthropy. The Catherine B. Reynolds Foundation, established in 2001, has donated more than $100 million to major cultural institutions across the country. Among the beneficiaries is the D.C. College Access Program, a charity closely affiliated with Donald E. Graham, chairman of The Washington Post Co.

The foundation appears in some ways to present itself as an independent charity giving away the personal wealth of Catherine Reynolds. It maintains a separate Web site and Reynolds identifies herself as the chairman and chief executive of the foundation, in addition to her role as chairman and chief executive of EduCap, according to a company biography.

The foundation doesn't exist as a separate legal entity, though; it is another name by which EduCap does business, according to documents and company officials. So when the Catherine B. Reynolds Foundation donates money, it is from the tax-exempt lending company, according to company officials and tax filings. Steven Glover, a member of the EduCap board, said Catherine Reynolds usually proposes the donations, which the board then approves.

In some instances, the money given away in the foundation's name has benefited organizations and entities with ties to Reynolds's family. It donated $400,000 to a private school after Catherine Reynolds's daughter was accepted there in 2001.

One of the largest beneficiaries of the foundation has been the Academy of Achievement, a separate nonprofit company run by Wayne Reynolds that sometimes directs payments to a for-profit company he runs. EduCap has donated at least $9 million to the academy, which then paid at least $1.7 million to ASC Management Co., a company whose sole shareholder is Wayne Reynolds, tax filings show.

Wayne Reynolds said the payments are fair compensation for his work on the four-decade-old academy, whose main mission is hosting an annual International Achievement Summit, a well-known four-day gathering where several hundred graduate students meet with and learn from luminaries that have included Nobel laureates, Hollywood moguls, politicians such as Bill Clinton, and journalists, including several from The Washington Post. "We change people's lives," Reynolds said.

The operations of EduCap and the Academy of Achievement are intertwined. The companies share the same office space, hold corporate retreats at the same Caribbean resort and lend each other accounting and administrative staff, according to former employees and company records. Wayne Reynolds sits on the EduCap board of directors, and Catherine Reynolds is the vice chairman of the Academy of Achievement's board.

Catherine Reynolds stressed the professional standards of EduCap and said the spending practices were no more extravagant than those of major for-profit lenders.

When asked whether the standards should be different for tax-exempt groups, her husband said their philanthropy was a sharp contrast to other lending executives', such as Albert L. Lord, chairman of for-profit lending behemoth Sallie Mae. Referring to the scrutiny Lord has received for building a private 18-hole golf course in Anne Arundel County, Wayne Reynolds said: "Better we should be like Al Lord and make $200 million and build a golf course? And he's proud of himself? To me, it's just disgusting."

One Percent Default Rate

Some student advocates question whether EduCap's business practices benefit students.

Unlike federal loans, for which interest rates are now capped at 6.8 percent, EduCap offers private loans with variable effective rates as high as 18 percent. Pappas said most students, though, pay interest of 10 to 11 percent, with the highest rates going to students who are at the greatest risk of defaulting on their loans and can't borrow elsewhere.

The company declined to reveal its recent annual default rates but said the rate has generally been about 1 percent over the company's 20-year history. "The results speak for themselves," Catherine Reynolds said. "When 99 percent of your portfolio pays you back, one has to deduce that its not usurious or irresponsible lending."

Last year, the United States Student Association, the country's largest student organization, complained to the Federal Trade Commission, urging the agency to "take action to stop false and deceptive advertising practices" by EduCap. The commission wrote last month that nonprofit groups do not fall under its jurisdiction and that it does not plan to take action, according to a letter obtained by The Post under the Freedom of Information Act.

EduCap said the complaint had no merit. The company later removed or modified certain statements from its Web sites to increase clarity for borrowers, not because it agrees with the complaint, Pappas said.

EduCap, which now lends under the name Loan to Learn, has also hosted an all-expenses-paid conference for university officials and their spouses in Pebble Beach in 2005, and it planned another this year on the Caribbean island of Nevis, which was canceled after media scrutiny.

A financial aid official from the 2005 conference, Tony Sutphin of Virginia Tech, added EduCap to the school's list of recommended private lenders after the company paid for him to attend. (Sutphin declined to comment, and Pappas said EduCap has no formal business relationship with the school.)

Although the company had previously said the purpose of the conference was to discuss education, Reynolds said in the interview that her goal was to promote the company and connect the relatively new Loan to Learn program with EduCap's well-known brand name.

"I thought it was important to make the financial aid community aware that this is our program," she said, "so that if someone walked in and said, 'Have you heard of this?' they could say, 'These people have been around.' "

Reynolds explained that she listens to criticism but doesn't obsess about it: "I worry about what I think of me."

"At the end of the day, you have to believe in what you're doing," she concluded. "And I think EduCap has done a good job."

Staff researcher Meg Smith contributed to this report.

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