Student loans, public interest

Members of the Legislature’s Business and Economic Development Committee can do a lot today to assure the public that the state’s tax-exempt bonds used to finance student loans are producing a good return on investment by increasing access to higher education in Maine. They can do that only if they can hear themselves think over the din of hysteric lobbyists.

For more than a year, lawmakers and a special commission have been sorting out the complicated issue of how the portion of Maine’s federally allowed tax-emempt bond cap dedicated to backing student loans is spent. What they have found is that one private non-profit organization, Maine Education Services (MES), has exclusive no-bid contracts and intermingled boards with two state-created entities, Maine Educational Loan Marketing Corp. (MELMAC) and Maine Educational Loan Authority (MELA), with virtually no state oversight. They have found high salaries, plush offices and non-profit revenues used to bankroll for-profit spin-offs. What they have not found is clear evidence that the benefits of the tax-exempt bonds, a scarce and valuable resource, are being passed along to students.

The Commission on the Ceiling on Tax-Exempt Bonds, consisting of education and finance experts, was created to study the situation. Its recommendations included the possibility of dismantling the current structure and creating one state entity to oversee the use of these bond proceeds. Throughout their months of meetings and hearings, commission members complained of a lack of disclosure by MES and an apparent reluctance to provide timely and complete information. The Department of Professional and Financial Regulation also made several strong recommendations to strengthen oversight and accountability.

MES has been busy, too. It has a history of strong political connections — MES head Richard Pierce is a former Republican legislative leader, former Gov. Ken Curtis is a board member, former Gov. John McKernan was until recently. It has cultivated new connections through its practice of putting former, and even current, legislators on the payroll of the state entities it administers. It makes sure it has ample lobbyists on hand to answer any questions legislators might have.

MES also has engaged in tactics lawmakers of both parties should find utterly repellant. It’s newsletter has all but labeled Sen. Carol Kontos and State Treasurer Dale McCormick, two who have long sought fuller discloure, as either confused or anti-education. A new MES ad campaign, including an expensive mailing with a postage-free return postcard, asks Maine citizens if they want “Augusta to take away your right to America’s lowest cost student loan.” It warns that “Something’s going on in Augusta that could make educated Mainers an endangered species.” It is outrageous, over-the-top and offensive.

And it seems to be effective. The solid, common sense recommendations legislators started with are being watered and whittled down to a package of reforms that are more show than substance. The Business and Economic Dedvelopment Committee can begin to reverse this trend with a few simple adjustments to the bill now taking shape.

The current proposal for increased state oversight of MELMAC — two gubernatorial appointees to join the five MELMAC appointees — is insufficient. Other entities that use bond cap money, such as FAME and the state Housing Authority, have boards picked by the governor and confirmed by legislators. So should MELMAC. The provision for MELA and MELMAC contracts to go to competitve bid is meaningless as long as the boards are self-appointed and so closely allied with MES’s interests. The loophole that allows MELMAC to participate in the secondary loan market, in conflict with the intent of federal law, must be closed. Above all, the committee must forward nothing to the full Legislature that does not assure that these bonds are producing yields in the public interest.