Editor’s note: This oped is written by Nate Freeman of Northfield.
VSAC is holding a press conference to advocate against direct lending in Vermont today. The public nonprofit lender is lobbying Sens. Patrick Leahy and Bernie Sanders to affect language in the Student Aid & Fiscal Responsibility Act that will shield VSAC from competition and limit borrowing options for Vermont students. However, VSAC may be beyond saving now due to steep financial losses and poor management decisions. Despite supporters’ feelings about VSAC, there are many questions Vermonters should ask about the lender’s viability and financial activities.
Vermont reporters should consider the following concerns and questions about VSAC’s financial status and activities.
1. VSAC is bleeding cash fast. Last year VSAC pulled $23.1 million from emergency reserves, using $10.1 million just to cover day-to-day operations. The remaining $11.9 million shored up the lender’s creditworthiness.
• How much money has VSAC lost since the end of the last fiscal year?
• What further credit requirements and enhancements does VSAC expect in the coming year?
• Will VSAC ask legislature to disburse funds from the $50 million state obligation authorized last year?
2. VSAC incurs further losses due to hasty decisions. In the summer of 2008, VSAC offered bonds in a variable rate municipal market despite early signs and warnings that this market might freeze and that investors might not buy new offerings. CEO, Don Vickers, boasted that VSAC was the only public lender to raise new capital this way. Months later the variable rate market froze, too. Now VSAC’s bonds are failing in both the auction rate market and the variable rate market.
• Why did VSAC’s executive team miss the signals and warnings of impending market failure?
• What is the current cost of fees associated with VSAC bonds not selling in the auction rate and variable rate markets?
• How does VSAC plan to raise capital for new loans for fall 2010?
3. VSAC illegally profited from slice-and-dice financial products. From 2002 to 2007, VSAC used a scheme to abuse a loophole in a 1993 law to collect 9.5% return on low-interest rate loans. After the Inspector General declared this activity to be illegal, VSAC refused to submit to an independent audit. VSAC is now named in a lawsuit filed under the federal False Claims Act, seeking the return to the federal government excess student loan subsidies these lenders improperly obtained through the loophole in the 1993 law.
• How much money did VSAC illegally obtain through this loophole?
• Why did VSAC refuse to submit to an independent audit requested by federal authorities?
