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Report chases PHEAA chief out

The chief of the state’s embattled student loan agency announced Thursday he would speed his resignation after a report from the state auditor general showed that hundreds of Pennsylvania Higher Education Assistance Agency employees received $7.5 million in bonuses over three years.

Richard E. Willey’s announcement came after Auditor General Jack Wagner’s report showed that PHEAA — already criticized for lavish spending, executive salaries and bonuses — spent $108,000 in April to entertain employees at Hersheypark one month after the agency said it would limit spending.

“Following today’s release of an Auditor General report that criticizes the old issue of executive compensation and the new issue of our employee appreciation event at Hersheypark, it has become obvious that the media and political environment has become so antagonistic that our ability to compete as a business is being jeopardized,” Willey wrote to board Chairman William F. Adolph Jr.

Willey’s resignation takes effect Wednesday. Last month, Willey, 62, said he would leave at the end of the year.

PHEAA is a quasi-state agency that provides financial aid to Pennsylvania students attending colleges or trade schools. Critics have said the money spent for travel and executive bonuses should have been used to provide additional student aid.

Tuition to Pennsylvania’s public colleges and universities is among the highest in the nation.

There has been a firestorm of criticism over other PHEAA spending practices:

• Last month, the Pittsburgh Tribune-Review reported that Michael Hershock, PHEAA’s former CEO, is getting a state pension of $222,173 and an annual salary of $147,000 from the PHEAA Foundation. Hershock created the foundation in 2002 before he retired from PHEAA.

• PHEAA spent more than $400,000 between 2000 and 2005 to unsuccessfully fight a lawsuit to open its records.

• During that period, the agency spent $860,000 on travel.

Wagner’s report stated that about 325 employees, including middle managers and union workers, received bonuses in fiscal 2006-07. Between July 1, 2004, and June 30, 2007, PHEAA awarded $6.4 million in bonuses. On Sept. 7 — after the term covered by the audit — the agency gave its 23 top executives another $1.1 million.

Wagner noted that published reports have said only 23 senior executives received bonuses.

“What we have revealed today is that there are an additional 300 people receiving bonuses, of which 227 are middle management,” he said. “The culture problem within the management of PHEAA is they keep denying the fact they are a state agency — and they are.”

About 75 of the bonus recipients were union employees who received the incentives under the terms of their contract, Wagner said.

“We’ve suspended those payments, so part of this is moot,” responded PHEAA spokesman Keith New.

After the report was released, state Sen. Sean Logan, D-Plum, called for Willey’s resignation and threatened to resign as vice chairman of PHEAA’s board if Willey did not step down.

PHEAA officials criticized Wagner for giving them the audit an hour before he held a news conference to discuss it.

“The report reads more like a subjective commentary than an objective audit,” said New. He said the audit report rehashes much of what has already been published in the news media.

New stressed that the bonuses, which were suspended last month, came out of PHEAA’s earnings, not taxpayer dollars, and were tied to its business growth.

The cost for the April employee outing at Hersheypark was $79,000, not $108,000, New said. He said the difference between the two figures was money paid by PHEAA employees who bought additional tickets for family and friends.

New argued it was unfair to suggest the agency reneged on its promise to cut expenses because an event for employees is not the same as travel or other business costs.

But the agency’s explanation did not satisfy Logan.

“Our employees are wonderful employees and are the reason PHEAA has so much success,” he said. “We pay them well, and they’re compensated well. This was an outrageous expenditure of PHEAA money that could have gone to grants and loans.”


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