Rose, the company's new public relations guy, confirms that the $91 million was used to buy up existing loans. The remaining $50 million, he says, is now sitting in reserve.
"AHELA needed to build up its capacity," Rose says, "so that when it increases its business with the University of Arizona, with Arizona State University, that it has the capacity to service student loans."
This year, armed with yet another $95 million bond allocation from the state, AHELA has begun to make loans of its own. (To date, Rose says AHELA has placed nearly 3,000 loans. It hopes to increase that number to 10,000 loans in the next fiscal year, which begins in July 2007.)
AHELA is making some progress. John Naimetz, financial aid director at the University of Arizona, says typically he won't recommend lenders to students unless the lender reaches a certain volume by finding students on its own.
But Naimetz made a special exception for AHELA after seeing how good its prices were: Thanks to low interest rates and no origination fee, students who sign with AHELA for $38,000 in loans would owe $4,000 less than if they went with some of the other lenders on Naimetz's list.
But, as Naimetz admits, the student loan market is crowded with competitors, desperate for a piece of the business. AHELA is still handling just 4 percent of the business at the UofA.
Even with all those tax-free bonds to subsidize them, as it turns out, AHELA's loans are still just comparable to the in-house loans offered by the university. And those have an added benefit to students, Naimetz says, because the University of Arizona takes all its loan profits and channels them back into scholarships for its students.
"For every $10 million we do in business, we generate about $150,000 for student grants," Naimetz says. "We take what we need to run the program but that's just about nothing."
Rose defends AHELA in part by saying its nonprofit status gives it a similar structure: Rather than enrich shareholders, AHELA will use its profits to provide ever better rates, not to mention scholarships.
Incredibly, two years and $236 million in tax-free bonds later, AHELA has yet to issue a single scholarship. But Rose says it has plans to do so, and not just the one-year, $2,500 Arizona 9/11 Memorial Scholarship currently advertised on the company's Web site.
"We'll have a Barry Goldwater Scholarship, a Mo Udall Scholarship," Rose says, referring to the late senator and late congressman. "The bottom line is that money from these loans is not being shipped off to shareholders. It's being plowed back into scholarships."
But the question remains of just how long AHELA can keep its monopoly. After all, the governor has asked the commerce department to investigate AHELA's formation and performance. She's also denied that she knew Cantelme and his cronies were involved with the group, saying her staff had contact with them, but she didn't.
(It should be noted that Napolitano's protests, while possibly accurate, seem fairly disingenuous. Cantelme's name is all over the group's articles of incorporation, as well as the documents asking for bond allocations each of which the governor ultimately signed off on.)
And at least one group is vying to get some of the work for itself. Cology, the Scottsdale-based financial aid company, once handled the marketing work for AHELA, and even lost its employee, Murphy, who became AHELA's director. Now the company has hired a lobbyist, Larry Pike.
Pike confirms that he's been meeting with legislators to discuss the idea of allowing competition for the bond work.
Rose says he's convinced that Cology is behind AHELA's recent spat of negative publicity. However, this reporter, for one, had never heard of the company prior to Rose's bringing it to New Times' attention. (Thanks for the tip, Jason.)
Cology's CEO, Paul Rehnberg, says he hasn't been driving the press coverage in any way. He has nothing against AHELA, he says. He's just questioning whether Arizona has chosen the best system.
Like Arizona, the nonprofit bond seller in Washington state was sold to a for-profit company two years ago and pulled out of the business. But unlike Arizona, Washington's governor didn't choose an untested entity to jump-start a new process. Instead, the state sent out formal "requests for information" to more than a dozen groups, asking them for their thoughts and proposals on how to set up a new plan and oversee it.
Rehnberg says Cology was asked to submit a proposal something the company was happy to do. But now Rehnberg wonders if Arizona would consider opening the door to companies other than AHELA. Yes, his company is a for-profit, which appears to be strictly forbidden when it comes to tax-exempt bonds. But Rehnberg says he's exploring his options.