So, increasing college access, the vague goal of the federal government’s student loan program, became the mission of most student-loan conversion foundations. That doctrine holds that once the original mission of a nonprofit becomes impossible or illegal, the use of the nonprofit’s assets must be as close to the nonprofit’s mission as possible. This was because of the legal doctrine of cy-près. Changes in the law allowing nonprofits to convert to for-profit businesses necessitated the creation of a number of non-profit foundations. This story was similar to that of other student-loan conversion foundations created in the late ’90s. The board ultimately settled on college access and success. But the future Lumina Foundation was suddenly a philanthropic organization with an enormous $770 million endowment (the price Sallie Mae paid for USA Group) and an unclear mission. With so much attention on Sallie Mae during the merger, and less attention on USA Group, few today will recall hearing anything about the USA Group Foundation. However, the state of affairs had hardly resembled a free market since at least 1965, when President Lyndon Johnson signed the Higher Education Act and the acceleration of federal student loans began. The merger was widely criticized for allegedly allowing Sallie Mae to monopolize the student loan industry. However, USA Funds agreed to contract its guarantee services exclusively to Sallie Mae. According to USA Funds vice president of corporate and marketing communications Bob Murray, the reason was a federal rule preventing for-profit companies from guaranteeing federal loans. Part of that process was the purchase of USA Group in 2000. Starting in 1993, it began considering privatization. Created by President Nixon in 1972 as a government-sponsored enterprise, Sallie Mae-the Student Loan Marketing Association-had been propped up by the government for decades. The way the Lumina Foundation delicately puts it in its official history is that “USA Group had developed a wide range of services that arguably no longer fit comfortably within the nonprofit corporate model.” One official quoted in the history said that he and his colleagues were concerned that “the government might eventually come in and challenge the continuation of our tax-exempt status.” By the late ’90s, USA Group was criticized for its high executive salaries its president made a $1 million annual salary. After it began to take on tasks beyond loan guarantees, USA Group was formed as a holding company for USA Funds and other affiliates. He wrote that the government chose to play a game of hardball, in which “federal representatives literally conspired to create artificial surges in the demand for guarantees so that, state by state, our program could be ruled technically inadequate and the federal programs activated.” The government ultimately stomped out USAF, Cornuelle left the organization for good, and USAF reluctantly began guaranteeing federal loans instead of competing with them.īy the 1990s, USA Funds had become the nation’s largest private student loan guarantor-a somewhat controversial situation for a nonprofit organization. Nevertheless, the victory was short lived. He wrote that the first version of the new law would have “overwhelmed” his charity, but a compromise stipulated that the government could only guarantee loans after voluntary means had proven inadequate.Ĭornuelle and his lawyers were able to achieve not only this concession, but also language defining exactly what the government meant by adequacy, which Cornuelle considered a victory. Cornuelle had to officially cut ties with USAF in order to establish the lobbying organization and fight his legal battle.Ĭornuelle discussed the legal proceedings in the 1993 afterword to his 1965 book Reclaiming the American Dream. To defend USAF, Cornuelle created the Council of Private Lending Institutions as a separate lobbying organization. The new law encroached on USAF’s territory much more than 1958’s National Defense Student Loan Program this one threatened to crush USAF. Johnson signed in 1965 as part of his Great Society plan. The basis of this fight was the Higher Education Act, a law Lyndon B. ![]() ![]() His organization, whose downfall led ultimately to the creation of today’s college-access giant known as the Lumina Foundation, was created with the goal of competing with the federal government’s nascent student loan programs.īy the mid-1960s, however, the government began to fight back. Richard Cornuelle, the Indianapolis libertarian activist who started United Student Aid Funds (USAF), had a fight on his hands. (Editor’s note: This the second part of a two-part story detailing the little-known roots of the Lumina Foundation, a major force in higher education policy today.
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