Posted by: cslfconnects | March 12, 2009

CSLF Responds to recent press

These posts are in response to recent press regarding The Connecticut Student Loan Foundation. In accordance with CSLF’s business practices, we are posting our responses. We hope they reveal a continuity of ethical, market-appropriate strategies in as timely and transparent fashion as possible.

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CONNECTICUT STUDENT LOAN FOUNDATION

FACT SHEET

CT Student Loan Foundation – Overview

The Connecticut Student Loan Foundation is a non-profit corporation that administers, guarantees, and finances loans within the Federal Family Education Loan Program (FFELP). CSLF promotes access to higher education by helping students and their families plan for and pursue a postsecondary education.

Since 2003, CSLF has:
•    Guaranteed more than 200,000 loans, made to parents and students, amounting to over $1.7 billion dollars.   CSLF has also guaranteed tens of thousands of loan consolidations during that same time amounting to over $1.1 billion dollars
•    Issued student, parent and consolidation loans in excess of $1.2 billion dollars
•    Provided “second chance” loans to individuals amounting to $313 million dollars by purchasing previously defaulted loans of borrowers who have proven they have matured enough to meet their responsibilities

These significant accomplishments have been performed without funding from or liability to the State of Connecticut.

Structure & Oversight

•    CSLF is not a state agency or a quasi-public agency
•    CSLF receives no funding from the State of Connecticut
•    The Foundation’s bonds, note and other obligations are not a debt or liability of the State of CT
•    CSLF is regularly audited by both the U.S. Department of Education and independent auditors

Compensation & Benefits

•    There have been no executive salary increases for nearly 18 months
•    The CSLF President’s salary was recently reduced by 7%
•    Other executives and managers took a 5 % salary cut
•    Other employees have taken either a three (3) percent salary cut or a one-day per pay period furlough
•    All employees, including executives,  have taken an additional 2 % cut in compensation as a result of suspending company contributions to the Foundation’s  defined contribution pension plan
•    A car allowance is a common form of compensation, particularly in a competitive industry that requires frequent visits to clients.  There was never a time when 25 employees received a car allowance.

Marketing activities

•    The nature of CSLF’s business requires it to compete with both for-profit and not-for-profit entities.  Competing in business requires expenditures on marketing activities and materials
•    CSLF has in the past, used golf tournaments and event tickets to entertain and market its products and services to schools and lenders in a competitive environment.  These have also been used to support scholarship fund raisers
•    Changes in Federal and State regulation and adoption of codes of conduct no longer allow schools to accept invitations to such events

CSLF in the Community

•    CSLF has directly provided or has been instrumental in providing scholarships to numerous individuals over the years.  Since the 2002-2003 fiscal year, this funding has exceeded 700,000
•    CSLF has supported scholarship funds raising conducted by both public and private educational institutions in Connecticut.  This includes supporting the Barnard Scholarship Program as a sponsor and forgiving more than $170,000 of loans to Barnard scholars
•    Over the past six years, CSLF alone has conducted approximately nine hundred (900) college planning sessions, financial aid workshops, Free Application for Federal Student Aid (FAFSA) workshop, money management workshops and other seminars and training and professional development sessions for students, parents, guidance counselors and financial aid administrators
•    Between 2003 and 2008, CSLF paid or waived fees on behalf of students amounting to more than $13.4 million dollars in addition to lowering and negotiating lower interest rates for borrowers

3/11/09

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A Statement by President Mark Valenti:

State Auditors, working at the request of Michael Meotti, Commissioner of the Department of Higher Education, have written a letter dated March 5, 2009 which addresses operations at the Connecticut Student Loan Foundation (CSLF).  Copies of this letter were distributed to you as well as legislative leaders.  Although I have obtained a copy of that letter, incredibly, neither I nor the CSLF Board of Directors were officially provided with a copy.  While it would appear that the Commissioner has had a number of conversations with State auditors, neither I nor the members of the CSLF Board were ever contacted during the “research” process.   There was not a single discussion with me or my executive staff concerning these findings.  The Auditors of Public Accounts and Commissioner Meotti have made no attempt to discuss with me CSLF’s operation or documentation as a result of these “findings.”  Had the auditors spoken with me they would have realized the extent of their misrepresentations prior to releasing this information.  As both President of CSLF and as a Certified Public Accountant, I find the approach used by the auditors to be highly unacceptable, incomplete and grossly unprofessional.

As part of its mission, CSLF provides services for Connecticut residents and Connecticut schools free of charge.  There is no cost to the individuals, the schools or the State.  CSLF is not a state agency or a quasi-public agency and as acknowledged by the State auditors in their letter to Mr. Meotti, “The State does not provide funding for the Foundation nor is its bonds, notes or other obligations a debt or liability of the State.”  The majority of CSLF’s revenues come from interest earned on the student loans it originates and fees it receives for services provided to the United States Government through the U. S. Department of Education (ED).  CSLF’s operating performance, including its expenses, is regularly audited by both ED and independent auditors.

The State auditors’ lack of understanding of the student loan industry has resulted in a letter that serves to create a misleading picture of CSLF, its business model and what it does to fulfill its mission. The nature of CSLF’s business requires it to compete with both for-profit and not-for-profit entities. Like other businesses in a highly competitive marketplace, CSLF makes expenditures on marketing activities and materials.  For instance, CSLF has in the past, used golf tournaments and event tickets to both support school and charitable events and to entertain and market its products and services to schools and lenders in a competitive environment.  All such expenditures and related activities were well within the industry norm, both with regard to the amount and type of activity.

The auditors made no attempt to understand the CSLF business model.  If they had, they would have learned that the capital market turmoil coupled with recent severe cuts made by Congress  to the Federal Family Education Loan Program (FFELP), and not excessive spending, has created CSLF’s current financial dilemma.

CSLF’s primary mission, to improve educational opportunity, is largely accomplished through participation in the FFELP.  Since 2003 (which is the earliest year that has been cited by the auditors and a year that was previously covered by a State of Connecticut audit) , CSLF has guaranteed more than two hundred thousand loans made to parents and students amounting to over $1.7 billion and has guaranteed tens of thousands of loan consolidations amounting to over $1.1 billion.  Since 2003, CSLF has made student, parent and consolidation loans in excess of $1.2 billion.  CSLF has also provided “second chance” loans to individuals amounting to $313 million since 2003 by purchasing previously defaulted loans of borrowers who have proven they have matured enough to meet their responsibilities.

CSLF has directly provided or has been instrumental in providing scholarships to numerous individuals over the years.  Since 2003, sponsorships or scholarship fund raisers and direct scholarship funding has exceeded $700,000.  CSLF has supported scholarship fund raising conducted by both public and private educational institutions in Connecticut.   Barnard Scholar award winners, all of who attend Connecticut State universities, received more than $170,000 since 2003 in scholarships from CSLF by way of loan forgiveness.

CSLF has touched the lives of tens of thousands of Connecticut residents.  Providing one-on-one sessions with families who are in need of detailed assistance concerning the college application and financial aid process is commonplace.  In addition, during the past six years, CSLF has conducted approximately nine hundred (900) college planning sessions, financial aid workshops, Free Application for Federal Student Aid (FAFSA) workshops, money management workshops and other seminars, training and professional development sessions for students, parents, guidance counselors and financial aid administrators.

In order to provide student loan borrowers additional benefits, CSLF has reduced interest rates on its loans and has contracted with other lenders to obtain additional reduced interest rates for borrowers.  In addition, between 2003 and 2008, CSLF paid or waived fees on behalf of students amounting to more than $13.4 million.

The audit letter of March 5, 2009 raises concerns about cash flow.  Addressing this negative cash flow would require a specific understanding of the intricacies of CSLF’s business model, the trust securing its bonds and Federal regulations regarding the establishment of funds.  It requires understanding of the long-term positive future benefits of current cash outlays and how that has been disrupted by legislation and the capital market crisis.

CSLF has consistently been forthright with information.  I have advised the Office of Policy and Management, the Treasurer’s

office, State legislators and others including the Commissioner of Department of Higher Education on a number of occasions beginning over a year ago, that the current crisis in the capital markets coupled with recent severe cuts made by Congress  to the Federal Family Education Loan Program is what has created CSLF’s current financial difficulties.

In fact, it is CSLF’s current operating concerns that provide the impetus behind Raised Senate Bill No. 802.  As I stated in my testimony before the Higher Education and Employment Advancement Committee at a public hearing on February 10, 2009, CSLF can no longer sustain its operation through its current business model.   CSLF’s business model no longer works due to recent federal legislative cuts and the capital market crisis.  My staff and I welcome the opportunity to sit down with state policymakers to discuss CSLF’s business and federally mandated structure.

The auditors appeared to have concerns about negotiations being conducted with an outside company.  Although negotiations with an outside company have been taking place on a confidential basis, no one from the State auditors has made an inquiry to me concerning that issue.  The comment in the March 5, 2009 letter “…however, the Foundation has not provided us with any information concerning these negotiations,…”  is misleading.

Another misleading presentation being made by the auditors is suggesting that CSLF is a top-heavy organization.  In addition to the auditors’ apparent misidentification of managers, managers and supervisors have assumed increased workloads and greater responsibilities due to staff reductions.  This has led to inaccurate conclusions by the auditors.

The issue of compensation is another topic of the auditor’s letter of March 5, 2009.  At least three (3) executive compensation studies have been conducted in recent years on behalf of Connecticut Student Loan Foundation’s Board of Directors.  Most recently, a compensation study was conducted in 2007 by Hire Expectations, a consulting firm that had specific expertise in this area.  The study indicates the executive salaries at CSLF to be at, or below, comparable industry norms.  Auditors also neglected to report recent salary cuts which reduce the compensation being presented in the letter.

Additionally, without the knowledge of the business, the industry or the business model, the auditors fail to appreciate the need for CSLF staff to travel to schools and lending institutions to promote CSLF’s products and services, to provide their staffs and students with training sessions and seminars and to assist families with completing forms and applications.  As such, a car allowance is a normal and necessary form of compensation.

The auditors also made questionable representations regarding holiday parties, support for the retirement party for a financial aid director and other matters.  CSLF has not had an off-site holiday gathering for its Board and managers since 2006.  CSLF verified, in advance, that our participation in the retirement party was within the limits that would allow State employees to participate based on Connecticut State Ethics Regulations.

There are other issues raised in the auditor’s letter which I would be willing to discuss with anyone.  Issues such as the building foreclosure have not been properly presented.  This pending legal issue can be discussed privately.

To say the least, I am thoroughly disappointed by the lack of communication which led to the March 5, 2009 correspondence.  All additional documentation that was needed and all answers to questions would have been provided if I or my senior staff had been allowed to be involved in this process.  I am gravely concerned that recent information provided to the media by Mr. Meotti and the March 5, 2009 letter have severely impacted CSLF’s ability to negotiate with an outside entity.  These negotiations have been conducted with the intent of providing continuation of State jobs and services.

As I have stated, and as the auditors have pointed out, CSLF receives no funding from the State of Connecticut and has no debts or obligations that are a liability of the State.  The Connecticut Student Loan Foundation is neither a State agency nor a quasi-public agency.  It is a 501(c)3 non-profit organization created by State statute that participates in the Federal student loan program.  CSLF is thoroughly audited by both federal and independent auditors.

I invite anyone interested in gaining a complete and accurate understanding of Connecticut Student Loan Foundation to visit me and my staff.  We are ready and willing to discuss at length the results of any audits, CSLF operations, its fund accounting, its trust requirements or any other issues.

Mark W. Valenti
President

Notes:
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1. Cuts to the FFELP were made through The Higher Education Reconciliation Act of 2005 and the College Cost Reduction and Access Act of 2007.
2. State Audit Reports for years 2002 through 2005 are included.
3. The Barnard Scholar Award is presented to exceptional students attending any one of the four Connecticut State Universities.  CSLF has both been a sponsor of the Award dinner and has forgiven student loans of Award winners.
4. Cuts to the FFELP were made through The Higher Education Reconciliation Act of 2005 and the College Cost Reduction and Access Act of 2007.
5. This attachment is a document presented at a recent Board of Directors meeting which discusses some background of CSLF’s loan servicing and lending activities.  Loan servicing (which began in the early 1980’s) was addressed in the audit letter during a discussion of staff reductions.

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A letter to the Editor by Senior Vice President & CFO Diane Del Rosso:

March 11, 2009

Regarding:  Don Michak, “Student Groans”, Journal Inquirer, Monday, March 9, 2009 2:21 PM EDT

Dear Editor:

I guess this is a lesson in not believing everything you read.  What happened to responsible reporting?  The Auditors of Public Accounts for the State of Connecticut sent a letter to the Commissioner of Higher Education (Michael Meotti) reporting on information that Mr. Meotti asked them to report on.  Mr. Meotti is an Ex-Officio member of the Connecticut Student Loan Foundation’s (CSLF) Board.   The letter contained errors and insinuations regarding CSLF.  Not reported in the letter or article is the good work done by CSLF’s staff, nor the number of students and families that have been assisted by CSLF, either through guaranteeing their student loans, providing student loans or with counseling them in their education choices.  Also not reported is a lengthy list of prudent and successful business decisions that have helped CSLF continue its mission despite numerous and frequent changes to the industry

There are two very important facts that were not reported.  First, CSLF is not a State agency or a quasi-state agency and does not receive State money.  Second, no one at CSLF has been accused of misappropriating or stealing funds.  Why would the Auditors of Public Accounts spend their time reviewing information of an entity that does not receive State funds?   More importantly, why was CSLF not afforded the opportunity to review this information with the auditors, as is customary?  Someone set out to hurt CSLF, but what is the motivation?

CSLF operated, until recently, three distinct business lines – loan guarantee, loan servicing and student loan lending.  The student loan industry is a highly regulated industry that must follow complex laws and regulations. CSLF is regularly audited and reviewed by its independent auditors, Federal Auditors and State Auditors.   While I have sometimes disagreed with conclusions reached by auditors and reviewers in the twenty-one years that I have been employed at CSLF, I have always been given an opportunity to represent and defend CSLF’s actions, until now.  The letter written by Mr. Johnston and Mr. Jaekle has misconstrued information for some specific, unknown reason that I find completely unwarranted and offensive.

I have learned that anyone can take information and misconstrue it to harm others for their own purpose.  Thank you for helping the Auditors of Public Accounts and Mr. Meotti accomplish this.

Respectfully,
Diane Del Rosso
Senior Vice President & Chief Financial Officer
Connecticut Student Loan Foundation
525 Brook Street, Rocky Hill, CT 06067
(860)257-4001, extension 228

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