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University will repay federal aid
WSSU owes $1.15 million to U.S., other lenders over the next 3 years
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Published: November 17, 2008
Winston-Salem State University will repay the federal government and lenders $1.15 million over the next three years for loans and grants that the university gave to students who were not eligible for the money.
The university owes $710,855 to the Department of Education and $437,901 to lenders of subsidized loans to students, according to the final report of a federal review team.
The report was sent to WSSU on Sept. 5.
The federal review was started in 2006, prompted by a tip that the university's policies had problems, according to a spokeswoman for the Department of Education.
The review found that the university had trouble tracking students who withdrew from classes but never notified the university. As a result, students no longer taking classes got aid that the university should have required them to return.
The review also found that the university's academic standards were not strict enough to meet federal rules for students getting federal aid.
Chancellor Donald Reaves said that the university has fixed problems found by the review and is making sure they won't happen again. "It's behind us and we're going to move on," he said.
Reaves became WSSU's chancellor in August 2007, about a year after the federal review started.
Reaves said that WSSU is arranging a payment plan with the federal government that has monthly payments of between $16,000 and $17,000 for 36 months. A down payment would cover the rest of the debt.
WSSU is double-checking the list of lenders and plans to pay them in one payment, said Aaron Singleton, a WSSU spokesman.
Reaves said that the money will come from a discretionary fund, which has money set aside as a sort of "rainy-day" fund.
The fund has about $1 million in it, Singleton said.
Alumni donations would not be used to pay the federal government nor would any of the university's state financing, Reaves said.
WSSU faces pressure on its budget on several fronts. The university is expected to run a $1.5 million deficit in its athletics department as the school continues to make a transition to Division I.
Gov. Mike Easley has also told all state agencies to find 2 percent of their state financing to return to the government. For WSSU, that would be about $1.4 million, Reaves said, adding that he expects another reduction.
"Yes, it tightens things up," he said, "but it will have no effect on our ability to service our students."
Reaves said that the university's recent budget decisions -- a hiring freeze and a freeze on travel -- are decisions that the administration would have made regardless of the debt.
Administrators with the UNC system and at WSSU said they have worked steadily with the federal review to correct the problems, sort out how much money was wrongly sent to ineligible students and develop new policies.
"I think that Chancellor Reaves and (chief financial officer) Gerald Hunter have taken this very seriously and are responding to these procedural deficiencies to try to get them righted," said Rob Nelson, the vice president of finance for the UNC system.
WSSU had faced the possibility of losing some flexibility in managing its budget if it hadn't fixed the problem.
Nelson said he would not be recommending that step. "We're very pleased with the attitude and the effort," he said.
A separate review of WSSU's financial aid, conducted by the state auditor's office, found problems in March and also raised questions about the university's procedures for checking whether students are eligible for aid.
The auditor's report questioned $9,000 in aid given to relatives of financial-aid employees and $40,000 in aid to employees who either were not eligible or who received more than other students with similar needs.
District Attorney Tom Keith called for an SBI investigation after the state auditor's report but then held off at the university's request while it dealt with the lawsuit, Keith said. WSSU sent depositions from the lawsuit to Keith two weeks ago. He said they are being reviewed.
After the auditor's report, WSSU fired three employees. The employees then sued WSSU, alleging that they were wrongfully terminated. All three employees denied the university's allegations that they wrongly took financial aid from the school. After their attorney took depositions from several school officials, WSSU settled the lawsuit.
The settlement reinstated the three employees, though one then resigned, said their attorney, David Puryear.
WSSU paid the employees back pay, restored lost vacation days and benefits, purged their personnel files of any mention of being fired and paid for their attorney fees, Puryear said.
The total value of the settlement was more than $86,000, he said. Reaves declined to comment on the lawsuit.
Puryear said WSSU claimed that the employees had violated rules that the university didn't have. "If those were the rules that should have been in place, that's a management problem, not the fault of my clients," he said.
He also said that the university rushed to fire the employees.
"Before the day they were told they were fired, no one investigating spoke with them to ask them anything about these allegations," he said.
■ Dan Galindo can be reached at 727-7377 or at dgalindo@wsjournal.com.
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