Student aid chief took home $250,000 in bonuses

An executive running the Education Department's Federal Student Aid office took home more than $250,000 in performance bonuses over the last four years, a period in which the office's oversight capabilities have been called into question.

Theresa Shaw, who is stepping down in June as chief operating officer of the office, received the bonuses under a 1998 law aimed at modernizing the organization's management. For fiscal 2003, Shaw took home a $71,250 bonus. She received a $60,000 bonus for fiscal 2004, $65,000 for fiscal 2005 and $65,000 for fiscal 2006, according to the department.

By comparison, for fiscal 2005 -- the most recent year in which numbers have been published by the Office of Personnel Management -- 66 executives in the Education Department received an average $10,652 bonus. Shaw also was given a $20,000 raise when the department increased her base salary of $144,600 to the statutory limit of $165,200 in November 2006. Shaw, who has headed the student aid office since September 2002, has won accolades for her management improvements, including earning the office's removal from the Government Accountability Office's list of high-risk federal programs and reducing student loan defaults by 40 percent.

But Shaw's office has been under increased scrutiny relating to its oversight of the student loan industry since revelations of improper financial ties among universities, companies and government officials came to light. In one instance, Matteo Fontana, who worked with Shaw at Sallie Mae before both came to Education, was put on administrative leave because he acquired at least $100,000 in stock in a student loan company, a perceived conflict of interest.

"The office of federal student aid under Ms. Shaw's tenure has been characterized by a lack of oversight and negligent administration of the student loan program," said Michael Dannenberg, education policy director at the New America Foundation, a Washington-based think tank. "Her office has cost taxpayers and students hundreds of millions of dollars. To find out that she got a bonus is just stunning."

Dannenberg's calculation is based in part on recent revelations that student loan companies -- most notably the Nebraska-based company Nelnet -- used a loophole to receive a government-guaranteed 9.5 percent rate of return on loans offered to students at much lower interest rates.

In January, Education officials struck a deal with Nelnet that allows it to keep $278 million in federal subsidy payments obtained through this loophole in exchange for not billing an additional $900 million.

In May 2003, Nelnet sent a letter to officials at the Office of Student Aid, including Shaw, detailing the company's plans to use the 9.5 percent loophole. Shaw's office did not stop the company from acting.

An Education spokeswoman did not respond to a request to speak with Shaw. But in a press release announcing Shaw's departure, Secretary Margaret Spellings touted her achievements.

"Her leadership and depth of experience will be sorely missed," Spellings said. "She made performance and results a top priority, establishing performance standards, metrics and reporting at every level. FSA now delivers more aid to more students at a lower operating cost with greater accuracy than at any point in its history."

In October 2005, the House Government Reform subcommittee overseeing the federal workforce invited Shaw to testify about her management accomplishments and how other agencies could emulate them.

Shaw was able to receive large bonuses because in 1998, Congress anointed the student aid office as the first performance-based organization under then-Vice President Al Gore's reinventing government initiative. PBOs were meant to run more like private-sector businesses.

Executives at the agency had to commit to annual performance goals, and were rewarded with hefty bonuses if successful. The chief operating officer is eligible for an annual bonus of up to 50 percent of his or her salary. Executives also were given personnel and procurement flexibilities to meet their goals.

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