More trouble for Benedict: College must repay $658,000

College disputes audit findings that it mishandled student loan program

Benedict College has been required to repay more than $658,000 since 2001 for violating rules governing federal student loans, U.S. Department of Education records show.

Benedict president David Swinton dismissed the ordered repayments.

“That’s what auditors do,” he said. “They point out things that need to be fixed.

“That audit covered every year since the (direct) student loan program was started (in 1996-97). That audit took 2½ years to do. We disagreed with it.”

Such repayments are unusual, according to a check by the Education Department of 10 private institutions and 11 public colleges in South Carolina.

Only three of those schools — Columbia’s Allen University, Newberry College and Spartanburg’s Wofford College — have been forced to make repayments. Those three schools repaid a combined $134,977 following federal audits dating back to 1992, with almost all of the money coming from Newberry last year.

Loss of federal loans and grants could financially cripple Benedict, which has faced a cash-flow shortage for at least a year.

Benedict has been a mainstay of African-American education in South Carolina for a century and a half. The decade-long disagreement with federal officials over student loans is important because 92 percent of Benedict students use the loans to help cover the $21,814 annual cost of tuition and other expenses at the private, nonprofit college.

Federal officials have threatened to cut off loans to the college’s students if Benedict doesn’t improve its management of the student loan program.

“That’s boilerplate language,” Swinton said Friday. “As far as I know, we are not in any danger of losing our eligibility. We’ve always responded to their findings.”

GRADUATION RATE

Federal Education Department officials cited Benedict, in part, for giving federal loans to students who were not making satisfactory progress toward graduation.

Benedict graduates 6 percent of its students in four years and 24 percent in six years, the most recent figures from the Education Department show.

That’s the second-lowest graduation rate among South Carolina’s independent colleges. Allen University has the lowest.

Among the 37 colleges of the United Negro College Fund, including Benedict, nine schools have lower six-year graduation rates.

Swinton said the school is making progress toward improving the graduation rate. He said statistics more recent than those used by the Education Department show students who entered Benedict in 2000 graduated after four years at a rate of 13.7 percent, and after five years at 23.3 percent.

For the class that started in 1999, the six-year graduation rate was 25.9 percent, according to information Swinton provided.

“We’re not satisfied with the rate,” Swinton said. “We’re dealing with students whose parents were disadvantaged. We’re doing the best we can with those kids.”

A handful of Benedict’s 31 trustees have expressed concern that they have not been briefed on the college’s financial problems.

Newly elected trustee Darrell Jackson said he would like to see board chairman Charlie W. Johnson of Louisville, Ky., poll the board to see whether other members want to meet to learn more about the school’s finances, especially its $101 million in debt and other liabilities, and the student loan program.

Jackson questioned whether the school’s leadership — both its president and its board — have adequately served Benedict’s students.

“Claflin University and Morris College have avoided these kinds of penalties,” said Jackson, a state senator who represents the district in which Benedict is located. “Other historically black colleges have done what we are doing and have avoided these problems.

“I question why a student or a parent would be comfortable sending their children to an institution with these kinds of issues.”

Four other trustees have told The State newspaper they would support such a meeting.

Efforts to reach Johnson for comment were unsuccessful.

FEDERAL AID VITAL

Benedict’s enrollment dropped to about 2,550 last fall after peaking at 3,005 in 2002.

Because Benedict depends on tuition and fees to operate, the drop in enrollment has produced operating losses. Stabilizing enrollment this fall will be crucial to Benedict’s efforts to balance its finances.

Swinton has said he expects enrollment to match that of last fall or be slightly higher.

Previous enrollment losses have forced the school to cut salaries and scale back community activities as Benedict led the redevelopment of a large part of downtown Columbia, near its Harden Street campus.

Earlier this month, Benedict officials notified employees their July 31 payday might be delayed by four days; they later said the college would make its payday on time.

Benedict could not maintain its current spending without federal assistance. Total federal grants and loans have exceeded $150 million, Swinton said. That’s 30 percent of Benedict’s roughly $500 million in total revenue since Swinton became president in 1994.

The college’s failure to solve its loan problems could put that federal money revenue stream in jeopardy.

Each year since 1997, the Education Department has cited Benedict College for deficiencies in solving accounting and policy problems left from previous years.

Last year, the department issued its strongest warning in a Nov. 7 letter to Swinton:

“We would still remind the institution that this is a repeat finding. We would also like to restate that repeat findings in future audits or failure to satisfactorily resolve the findings of this audit may lead to an adverse administrative action. An adverse action may include the imposition of a fine, or the limitation, suspension, or termination of the eligibility of the institution.”

Benedict participates in the William D. Ford Federal Direct Loan Program. Instead of turning over student loans to a third-party administrator such as the South Carolina Student Loan Corp., Benedict receives the money directly and administers federal student loans itself.

Swinton said the program has been troublesome from the start.

“It was started in 1996-97, and no one really knew how to run the direct student loan program,” he said. “There were errors made on both sides.”

AUDIT REPORTS

To review Benedict’s finances, The State newspaper obtained nine years of federal audit reports from the U.S. Department of Education and eight years of IRS 990 forms — a tax-exempt organization’s financial statement — under the U.S. Freedom of Information Act.

Benedict also has voluntarily returned more than $5 million to the Education Department, audits show, in addition to the $658,000 in liabilities and penalties it argued it did not owe the government.

The audits show:

• In 1997, the Education Department said Benedict had not submitted accurate and complete vouchers for Pell grants — which help low-income students pay for college — and the reconciliation of some $145,962 in awards was not performed on time. The department recommended further training for college personnel.

• In 1998, the department required Benedict to repay $16,157 resulting from deficiencies in record-keeping, failure to observe federal regulations and failure to document satisfactory academic progress by students.

• The department also cited Benedict for delays in refunding overpayments to students as required.

“The university is being placed on notice that this is a repeat finding of the 1998 and 1997 audit report,” the Atlanta case management officer wrote to Swinton in the 1999 audit report.

Swinton said the refund problems have been corrected and students are receiving their money within the guidelines.

• In 1999, the Education Department required Benedict to repay $1.7 million in student financial aid to which the college was not entitled. The college protested the refund, but repaid the money in September 2000.

• In another action, Benedict repaid $3.5 million to the federal government after federal auditors complained of poor record-keeping.

• Benedict was cited six times over nine years for failure to adequately document “satisfactory academic progress” for students receiving federal assistance. In their 2001 audit, federal auditors found an error rate of 22 percent when it required the college to re-evaluate student eligibility in 2000-01.

They said that for 2000-01, 69 students did not meet the school’s published satisfactory academic progress standards.

The audit’s finding resulted in liabilities that included a penalty of $114,442 because of ineligible loans, the auditors said. In a settlement agreement, Benedict is repaying $257,635 in 20 quarterly installments, U.S. Department of Education spokeswoman Jane Glickman said.

‘REPEAT FINDINGS’

Swinton said Benedict disagreed with the auditors’ findings.

“They started out saying we owed them $2.5 million,” he said. “We were able to prove to them those loans were legitimate, all except about $250,000. The fact is, we thought those loans were legitimate, too. But someone lost the paperwork, or something.”

In 2001, the federal agency said the college’s records did not match federal records. The agency cited Benedict five times since 1997 for shortcomings in record-keeping.

“Repeat findings from prior audit years constitutes an inability by the institution to properly administer the Title IV programs,” the Education Department wrote in 2001.

In 2002, the agency again cited Benedict for failure to correct 16 different criticisms noted in previous years.

Nine warnings were repeated in 2003.

In 2004, the department said Benedict owed the federal government $1.6 million for failing to reconcile its records with the agency’s. In 2005, the agency settled that claim with an agreement Benedict would pay “liabilities” of $400,717 in 15 quarterly installments.

If a deficiency has not been corrected and the amount due the department has not been paid, Education Department spokeswoman Stephanie Babyak said, “we will assess a liability.”

The agency’s most recent federal audit, for the year ended June 30, 2005, said Benedict had not corrected any of the 11 problems cited in the previous year.

TRUSTEE’S CHALLENGE

Trustee Jackson said he wonders whether Benedict’s current leadership can fix the school’s financial problems.

“This is nothing personal against Dr. Swinton, but I’ve begun to question whether he can bring us out of this,” Jackson said.

Jackson also said he holds the board responsible for Benedict’s financial situation.

“Every board member who is currently serving and not opening their mouths, I hold them personally responsible,” he said. “I challenge them to provide oversight, not just be a rubber stamp.”