A low-profile enterprise moved its headquarters and more than 500 employees last month from Oakdale to Washington Square in downtown Minneapolis. There's room for up to 700 under the lease if the growth plan works out.
Education Credit Management Corp. — ECMC Group — has grown revenue from about $45 million to $785 million and to 3,500 employees nationally over the past decade, including a controversial recent acquisition.
"Our mission is to help students succeed," said Chairman John DePodesta, a Washington D.C.-based attorney and businessman who was a founding director of ECMC in 1995.
ECMC, started with $750,000 in federal money, is a nonprofit business chartered by the U.S. Department of Education to collect defaulted government-insured bank loans to students. It also services some portfolios of loans that are not in default status on behalf of banks. Its $25 billion portfolio of current loans and $5.7 billion in defaulted loans makes it one of the largest of the nonprofit "guarantors."
"We have a fiduciary obligation to the government," said Dan Fisher, ECMC's general counsel. "There are no shareholders."
Several states have transferred their portfolios to ECMC, including Virginia, Oregon, California and Tennessee. (Minnesota's designated debt guarantor-collector is another company, Northstar Guaranty of St. Paul.)
In 2014, the last year for which it has supplied tax returns to regulators, ECMC made a profit, or surplus over expenses, of $200 million on nearly $400 million in revenue, most of which comes from fees and the roughly 17 percent it gets from its take of collections. It had net assets of about $1 billion.
"We've returned $12 billion [in loan collections] to the U.S. Treasury through our services as a loan guarantor," DePodesta said in an interview. ECMC also has spent several hundred million dollars on loan forgiveness and restructuring for struggling students, and financial education.
One critic, however, argues that ECMC is one of the huge, nonprofit loan collectors that has overstepped its bounds in a bid to "empire build" at the same time paying hefty compensation to its executives.
Robert Shireman and Tariq Habash, researchers at the Century Foundation, charged recently that ECMC and several other multistate loan guarantors are sitting on several billion dollars of accumulated surplus that could be used to relieve students who were put in sometimes-crippling debt.
"The remaining student loan guaranty agencies have more than $5 billion sitting in their bank accounts," the Century Foundation report said.
Some debt came from expensive trade schools that pitched students on lucrative careers but had horrible placement records. Several of them, including Corinthian and ITT, were shut down in recent years amid regulatory scrutiny, lawsuits and declining student populations.
Government-insured student lending through banks was ended by the Obama administration in 2010, in favor of direct federal loans to students through participating colleges. There are still $250 billion-plus in defaulted loans being managed by nonprofit loan guarantors. That will be a lucrative but shrinking business over the next decade or so. And ECMC and other big loan guarantors have looked to diversification.
ECMC won't file its 2015 financials with government regulators until November and declined to make them available until then. Chief Financial Officer Greg Van Guilder said 2015 will show a net loss of $61 million on revenue of $785 million.
ECMC, in a move criticized by Century Foundation, last year spent $300 million to buy and restructure about 50 of the failed Corinthian career schools, which generally offer nine-month certificates. ECMC started a nonprofit subsidiary, Zenith Education Group, to run them. The investment included reducing tuition by 20 percent, and working with mostly lower-income students to restructure debt through grants and refinancing.
The Department of Education approved the investment, ECMC said, although there were lawmakers who objected. The number of students has been reduced from about 40,000 to 10,000 through graduations and departure.
Corinthian had a horrible job-placement record and was accused of misleading students. That figured in its failure and lawsuits brought by regulators over predatory loans made to its students.
Former ECMC CEO David Hawn and the board decided ECMC could transform the remaining schools, which now number about 25, into economical, growing career academies that train people for real jobs. "We think there is a market opportunity," DePodesta said. "This is a challenged group of students. We're trying to create a new model for nonprofit career education. And we want to grow it."
ECMC hired Peter Taylor, former executive vice president and CFO of the University of California, to run Zenith and the ECMC Foundation. The foundation has about $250 million in assets and is used for debtor assistance and financial education.
The Century Foundation questioned the investment in Corinthian assets as, at best, a misguided attempt to transform a corrupt, failed business into a misguided ECMC growth vehicle, partly to justify lofty executive and director compensation.
In 2014, CEO Hawn, a former Wells Fargo banker, received more than $800,000 in compensation from ECMC. Hawn left ECMC last year after eight years to run a small Minneapolis nonprofit. Two other executives, Van Guilder and Edward Spear, also received about $800,000. Chairman DePodesta was the highest paid director at about $140,000.
ECMC said compensation "has been reviewed annually" by independent experts to ensure it complies with prevailing law and takes into account the complexity of the business and time commitment by directors.
ECMC was the government-appointed successor to failed Higher Education Assistance Fund, which failed in 1994-95 after teaming with for-profit trade schools and banks to build a huge portfolio of loans with default rates that swamped HEAF's reserves. DePodesta, a veteran bankruptcy lawyer, was part of the bailout crew brought in to handle the transition. The transitional board said it made taxpayers whole. The Government Accountability Office later said HEAF's collapse caused taxpayers about $300 million.
Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.
