EdFund board delays action on severance deal

EdFund's board of directors on Thursday deferred action on a proposed severance package that would have granted the student loan guarantor's executive staff over $3 million upon the sale of the Rancho Cordova-based nonprofit corporation.

Instead, the board passed a resolution directing an executive committee made up of some board members to study whether anything should be done to retain key employees.

Republican senators, meanwhile, urged EdFund board members to call off the proposed severance package for seven executives.

"It is entirely inappropriate for state employees to stand in the way of revenues that are meant to aid in the balancing of California's budget," Senate Republican leader Dave Cogdill said in a statement.

According to a copy of the proposed severance agreement, EdFund's executive staff would be entitled to two years' worth of salaries, bonuses and medical coverage if the sale of EdFund goes through. They would be entitled to as much as $20,000 each to help them find new jobs. EdFund would also be on the hook for any tax they would have to pay the state and federal governments.

The sale was approved in last year's state budget agreement, but Gov. Arnold Schwarzenegger's revised budget proposal suggests the sale will not go through until at least late 2009.

According to the most recent salary figures available, executives annually make between $170,557 and $338,951.

Elected officials said a lucrative package would diminish the amount of money the state could receive as the state tries to sell EdFund to potential private investors. They said the move could also hurt EdFund's efforts to assist schools with loan processing and help delinquent borrowers put their loans back in order.

Thursday's resolution also directed EdFund's executive committee to explore whether a severance agreement could be deliberated behind closed doors, contrary to advice from the California Student Aid Commission, which acts as an oversight body for EdFund.

As passed, EdFund's committee would consult both the student aid commission and the state Finance Department "regarding the board's right to deliberate in closed session matters relating to the sale of the corporation, including the retention of key employees."

State lawmakers established EdFund as a nonprofit public benefit corporation in 1997 to administer the federal loan program in California and provide counseling and outreach to students. EdFund maintains a $27 billion loan portfolio.

When students default, EdFund receives payment from the federal government and then handles collection duties, where it earns revenues through student fees.