The Pennsylvania Higher Education Assistance Agency (PHEAA), created to extend loans for education, is going after millions of dollars from delinquent student borrowers.
PHEAA's collection business is growing faster than its loan servicing. Between 2001 and 2011, revenue from loan servicing tripled from $65.7 million to $219.7 million. At the same time, money from defaulted loan collections — 16.5 percent to 18 percent of all loan collections — quadrupled from $34.9 million to $148.8 million. PHEAA saw a corresponding hiring boom and now employs 2,795 workers, including hundreds of new hourly employees at various call centers, up from 1,896 at the start of 2011.
The agency still underwrites grants, including $75 million this year, but records indicate the profit funding its grants increasingly comes from servicing loans and pursuing delinquent borrowers. PHEAA receives a cut of collections from defaulted loans.
The agency, established in 1963, at one time strictly issued and insured federally guaranteed student loans. It reinvented itself in 2009 when Congress decided the Department of Education would issue federal student loans, eliminating one of PHEAA’s largest profit centers.
It's now facing criticism for the new mission of collecting from struggling borrowers. Officials with the Commonwealth Foundation in Harrisburg, Pa. told the Pittsburgh Tribune-Review that it is "unfortunate that PHEAA can only exist as a debt collector. Maybe it’s time to change the model."
PHEAA posted a $28 million loss in 2008 when the credit crunch hit. The federal government stepped in with a bailout for it and similar agencies and it recovered in 2009. PHEAA jumped when the Education Department quit using it to issue loans but sought contractors to handle loan servicing. It quickly became one of four prime contractors nationally servicing federal loans.
Governed by a board that state lawmakers control, PHEAA has earned multimillion-dollar profits for years. A Tribune-Review analysis of its financial statements shows the agency’s bottom line grew from $36.5 million in 2001 to $174 million last year.
