UO loan program mishandled.

Byline: Greg Bolt The Register-Guard

A poorly managed student loan program at the University of Oregon improperly spent $1.6 million from donated money and was shut down with almost $8 million in unpaid loans still on the books, according to an internal audit by the Oregon University System.

The university is still deter- mining how much of the outstanding debt is collectable and the amount of borrowed money that will have to be repaid. All of the officials who managed the program retired before the problems came to light earlier this year, and no personnel action has been taken as a result of the program's failure.

UO officials requested the audit in April when a newly appointed administrator became aware that the loan program was in trouble. It was suspended pending the outcome of the audit and has since been terminated.

Frances Dyke, the UO's vice president for finance and administration, said the program was created to help juniors and seniors who were in danger of dropping out because of financial difficulties. The idea was to create a revolving fund that used payments from current borrowers to finance new loans.

"It is my belief, based on everything I've learned recently, that it was created with the best of intentions," she said.

The program was known simply as the UO Student Loan Program and was separate from the main financial aid program that coordinates federally subsidized loans for thousands of students.

From its inception in 1998 until it was shut down, the smaller program loaned $12.3 million to more than 2,000 students. But the audit found that the program was marked by poor internal controls, a lack of oversight and a failure to follow accepted accounting and record-keeping procedures.

As a result of the problems, approval standards were too lenient, and many loans were approved for borrowers who were poor risks. That led to a high number of defaults, and no warning flags were raised when the amount being loaned began to far outstrip repayments.

The audit found that as of the end of June, only $4.5 million in principal had been repaid, leaving $7.8 million still owed.

"In the end, no one was stepping back and saying this program is no longer sustainable," Dyke said. "The loan repayments were not replenishing the number of loans being made."

Collection efforts were similarly troubled. Record-keeping errors on loans turned over to collection agencies added to the low rate of repayment, and the university failed to write off uncollectable loans even when the borrower was dead, the audit showed.

Dyke said at this point it's unclear how much the university has lost on the program and how shortfalls will be repaid. The university is hiring an outside consultant to assess the program and determine the university's financial obligations.

The consultant also will review all other university loan programs and recommend improvements. The full review won't be complete until the end of 2007.

If money has to be repaid, Dyke said it will come from revenue the university receives through tuition and not from its state appropriation. She said the university will try to recover as much of the outstanding debt as possible.

"We're right now crafting a very aggressive collection policy," she said. "We're certainly going to try to collect every dollar from every living ex-student who has one of these loans, but only time will tell us how much of it is collectable."

The audit doesn't lay out a clear picture of how the program came to have so many problems. It indicated that employees in the loan program had wide access to all parts of the loan process even when they didn't need it and that job duties weren't narrowly defined, factors that can compound the chance of errors.

Dyke did not blame the problems on turnover in the office but said that prevented problems from being spotted sooner. And she said the auditors uncovered no evidence of misconduct.

"In my mind, they did a very thorough job of looking at those particular questions and could find no evidence of anything other than poor business practices," she said.

The $1.6 million in donated funds used in the loan program came from money held by the university, not the privately managed UO Foundation. Program managers apparently pooled money from a number of different funds, making it difficult to determine if it was spent according to the donor's wishes.

Dyke said some of the original donations that created the funds go back to the early years of the university, and all were intended for student assistance. But she said it will take time to determine if any restrictions on the funds were breached.