Educap, a multi-billion dollar student loan charity, is under investigation after reports that it abused its tax-exempt status. The charity has also been heavily criticized for charging high interest rates on charitable loans and pressuring students into loans without properly informing them of the terms.
Stephen Burd, a senior researcher at the New American Foundation, found that Educap charges up to 18 percent interest on loans — up to three times more than federal rates, and even more than for-profit businesses charge.
“These are absolutely not charitable terms,” Burd said in an interview with CBS News.
So where is all the money from these high-priced loans ending up? Tax reports point to Educap executives.
Catherine Reynolds, CEO of Educap, has received millions of dollars in compensation and luxurious benefits, including free trips on the charity’s $31 million private jet, according to CBS.
In 2007, Reynolds gave the Academy of Achievement an $8 million grant on behalf of Educap. The Academy of Achievement happens to be another “charitable” organization operated by Wayne Reynolds, Catherine’s husband. Tax records show that after the organization received the grant, Wayne Reynolds paid himself $1.5 million.
The money collected from student loans has been lining the pockets of charity executives. On one trip, Catherine Reynolds spent more than $8,000 of the charity’s money on gifts that included a cashmere coat. The Chicago Sun-Times reported that Reynolds took Chicago mayor Richard Daley and his wife on 58 flights, including international flights to Sweden and Asia. Another high-profile passenger was former Senator Ted Stevens, who was convicted on corruption charges in October.
It is unclear how Reynolds justifies the connection between what appear to be vacations with social elites and official charity business.
It is reprehensible for a “charitable” organization to present itself as not for profit when several people within it are in fact reaping generous profits.
Thousands of students are stuck in student loans with bad terms while top executives of so-called nonprofit organizations are living luxuriously off their debt.
Students should steer clear of shady organizations like Educap — if not for the terrible interest rates, then because of their clever subversions of the tax code
USF’s Financial Aid Office should be mindful of these groups and provide students with relevant information regarding lenders questionable activities before they consider taking out private or “charitable” student loans.