A Superior Court judge has approved a settlement between Attorney General Andrew Ketterer and the state’s largest student-loan agency that keeps the two from quarreling in court over the agency’s conversion to a charitable educational foundation.
Justice John Atwood OK’d a deal late Friday that gives the attorney general an indirect say in the makeup of the new foundation’s board of directors. It also requires the foundation to provide the attorney general with periodic updates on its charitable programs for the next 21/2years.
And in the settlement, the attorney general and the Maine Educational Loan Marketing Corp., or MELMAC, agree that the $30 million the student lender is getting in return for the sale of its $500-million loan portfolio is a fair and reasonable value, according to Bob Way, Ketterer’s special assistant. The money will be used to create the charitable trust.
However, a Boston-based lawyer for Consumers Union, the public advocacy group that publishes Consumer Reports, is extremely disappointed and uncomfortable with the deal.
“The attorney general never included the public in the negotiations with MELMAC over the creation of that public foundation,” Rebecca Goldberg of Consumers Union said on Monday.
A major element of the settlement is the attorney general’s hand in selecting the membership of the new charitable foundation’s nine directors.
Way said that as a first step a public advisory committee of at least five members will be formed. MELMAC’s current board will select the public advisory committee membership but from a slate of candidates nominated by the attorney general.
Then the public advisory committee will select the membership of the charitable foundation’s board of directors. In the first year, it will pick only four of the nine members. MELMAC’s existing board members will fill the other five slots.
After the first year, two of those five original MELMAC board members will be replaced when their respective terms end. The remaining three original members will serve until the end of 2002.
The attorney general’s nomination of candidates for the public advisory committee should provide sufficient public oversight of MELMAC, Way explained. Once the public advisory committee is formed, it is self-sustaining, choosing its own replacements.
However, Goldberg said that the process should be more “open and public” and that MELMAC should not be involved at all in selecting the public advisory committee.
Goldberg also noted that five of MELMAC’s current board members would remain on the foundation’s governing panel, a majority, during its crucial first year.
During the first year, the basis for the foundation’s charitable work will be laid because before MELMAC starts putting the $30 million to work, it will have to undertake an “educational needs assessment” of the state, and provide that assessment to the attorney general by September 2001. This assessment will guide MELMAC’s subsequent charitable actions, Way said.
However, members nominated by the public advisory committee will not become the majority of the board until 2002, after the assessment is submitted, Goldberg pointed out.
In June, the nonprofit MELMAC announced that it was selling its $500-million portfolio of student loans to the Nebraska-based, for-profit National Education Loan Network, or NELnet, in exchange for $30 million.
The sale is a requisite first step in MELMAC’s conversion to a foundation, under federal law. The sale is scheduled to be completed by the end of the month.
MELMAC acts as a “secondary student-loan market.” It buys student loans from banks, which lets the banks use the additional capital to issue more student loans. MELMAC holds three-fifths of the student loans issued in Maine, covering roughly 60,000 borrowers.
Formed in 1983, as a private, nonprofit, MELMAC and the Maine Education Services, a sister nonprofit agency that manages MELMAC programs, spent the past two years under intense legislative scrutiny.
The secretive agencies were accused of making it difficult for borrowers to obtain the discounts they offered on loan payments. They were able to offer the discounts because of MELMAC’s access to federally authorized, but state-issued tax-exempt bonds. MES and MELMAC officials argued that they made obtaining the discounts no more difficult than private banks do.
After legislation was passed this spring to make MELMAC more publicly accountable by authorizing lawmakers to appoint members to its board of directors, the agency decided to sell its student loans and become a charitable foundation.
The attorney general filed suit to halt the sale until a judge could determine whether $30 million was a fair price and whether the conversion adhered to state law.
Prior to September and the completion of the needs assessment, MELMAC will be allowed to proceed with two programs it has already announced, Way said. Those programs are a principal’s scholarship program at each high school in the state and a financial-aid administrators program.