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Industry Experts Urge College Boards to Exert More Oversight

With so many campus controversies of late, from the alleged misappropriation of college funds by some leaders to the alleged kickbacks from student loan providers to some financial aid officials, the role of board of trustee members comes into question.

The conservative Washington-based think tank, American Enterprise Institute for Public Policy Research, examined that role at a conference Wednesday. During a panel discussion titled, “Why All the Scandal,” industry experts examined the reasons scandals have occurred and why trustee members should be more vigilant.

In recent years, campus controversies pertaining to misappropriated funds and seedy partnerships have gained national attention.

In 2005, American University President Benjamin Ladner resigned amid accusations that he had misused funds for personal expenses. Last year, student loans scandals at numerous schools raised concerns that higher education administrators were receiving kickbacks for steering students toward particular lenders. Earlier this month, former Texas Southern University President Priscilla Slade pleaded no contest to a charge alleging she spent university money inappropriately. Slade agreed to repay the school more than $127,000.

In the case of college presidents, the competitive climate of higher education to get the highest rankings, the most donations, the biggest grants and the best faculty can encourage poor fiscal judgment, one expert noted.

Creating new revenue streams has become an integral component of fundraising as institutions attempt to compensate for shrinking state budgets. As a result, colleges and universities build relationships with companies, such as steering business to preferred student loan providers to alleviate costs.

The relationship between institutions and student loan lenders can be best described as “unsavory,” when looking at the financial benefits or “kickbacks” universities receive as a result of partnering with lenders, says Benjamin Lawsky, senior vice president and counselor of the U.S. Chamber of Commerce.

“Ninety percent of students choose a lender from their institution’s preferred lender’s list,” said Lawsky, “Fifty percent of the 90 percent choose the first lender on the list; however the lenders on the preferred list are not necessarily the best lenders for students.”

While the financial benefits from these partnerships could assist the institution in other avenues, “the problem with them is that they create an incentive for the school to load up its students with debt,” says Michael Dannenberg, an education program policy director for the New America foundation. “The school is funneling its students to the lenders.”

Alumni and board of trustee members must hold institutions accountable for the money it spends and the way the institutions choose to allocate it. “Every trustee member must be an auditor,” says Stephen Smith, a Dartmouth College trustee and alumnus. “You need to monitor what’s going on.”

Oftentimes the role of the trustee is limited to hiring and firing the university’s president and passing the budget. “I reject that minimalist definition. We are the institution,” says Smith, noting that trustees play a very important role in setting the university agenda for the future, helping administrators and faculty carryout the mission and the vision of the institution and maintaining the institution’s high educational quality.

Since 2005, American University has restructured its system of governance in a format that includes all the stakeholders: students, faculty, alumni and administrators. The board has been reorganized to include two non-voting faculty members and one non-voting student.

To promote transparency, the board developed a Web site to keep students and faculty members engaged in the decision making of board members.

“I believe that the governance changes at American University have been great successes and can be used as models for a modern, transparent governance structure. Every constituency has an opportunity to speak,” says Arthur Rothkopf, a board of trustee member at American University and senior vice president and counselor to the president at the U.S. Chamber of Commerce.

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