With the blessing of the Board of Regents, the president of the University System of Maryland's continuing-education college remains a major shareholder of a company that sells student loans, including loans to students at his institution.
Gerald A. Heeger, president of the University of Maryland, University College, owns a 6 percent interest in Global Student Loan Corp. and is listed as "chairman of the advisory board" on the company Web site.
Heeger disclosed his role with the company to the regents before they hired him in 1999 for the University College presidency, a $325,000 position. The board saw no problem with the relationship, according to Lance W. Billingsley, who was chairman at the time.
When the state ethics commission later questioned the arrangement, the regents granted Heeger an exemption from state conflict of interest laws under a clause that allows research faculty to profit from their findings. But the ethics commission has since said it has "serious concerns" about the regents' use of the clause.
"Frankly, we didn't think the legislature ... intended it to be used that way," said Charles Monk, a Baltimore lawyer who sat on the commission until last summer. "The purpose of the exemption was so the university could attract the finest researchers and scientists. I couldn't find where it applied in the circumstance of the university selling loan services to its students."
Global Student Loan, a subsidiary of EduFund International Inc., specializes in loans to international and distance-learning students such as those at UMUC, the state's booming online and continuing-education college. UMUC's Web site referred students seeking loans to the New York-based company until the ethics commission raised questions in 2002.
Last year, 32 UMUC students had loans with the company, out of 201 students at the college with private loans. The College Park-based school teaches about 26,000 students, most of them part time, making it one of the largest distance-education institutions in the country.
In an interview this week, university system Chancellor William E. Kirwan defended the regents' approval of Heeger's arrangement. While "regents are aware that there could be an appearance of a conflict of interest," Kirwan said, they are ensuring no actual conflict arises.
"The law doesn't prohibit the appearance of a conflict of interest," he said. "The board is aware of the situation, it monitors the situation and if there ever was a conflict something would be done about it."
Heeger defended his role with the company, saying he invested in it because of his interest in improving opportunities for foreign students, who often have trouble getting loans to study in the United States. Unlike other companies, Global Student approves loans without a U.S. co-signer, while charging higher fees and rates than other lenders.
Heeger said he helped form the company in the late 1990s, while he was dean of continuing education at New York University, and told the regents about it before they hired him to lead UMUC in 1999. Regents were eager to get Heeger - he was hired at a salary $120,000 higher than his predecessor's - and approved the arrangement.
Until the ethics commission first raised questions in April 2002, UMUC promoted Global Student on its Web site as one of several options for students seeking private loans. More distance-learning students are turning to private loans because of rising tuition and limits on using federal loans for part-time studies.
The ethics commission's inquiries prompted the regents' vote in July 2002 to grant Heeger a waiver under the research faculty exemption. In a closed-door meeting, regents determined that EduFund is "engaged in research or development" and that Heeger's role with the company is "necessary to the success of EduFund's research or development activity," according to an ethics commission report on the matter. The commission noted its "serious concerns" in the same report.
Heeger said that to try to allay the commission's misgivings, UMUC stopped promoting Global Student on its Web site. The site still promotes private loans offered by Citibank, which entered into a partnership with Global Student to offer loans to distance-education students last year.
To further reduce any conflict, Heeger said, he has placed his roughly 50,000 shares in the company in a voting trust and left the board of directors. While the company lists him as "chairman of the advisory board," such a board has yet to be formed and he now offers little guidance to the company, he said.
"I have no engagement in the day-to-day operations," he said. "I talk to management about where international education is going and I offer my expertise as needed, but I'm busy doing other things, and I'm not heavily engaged" in the company.
Heeger's reduced role with the company raises the question of how he qualifies for the research waiver, said Sheldon Krimsky, an academic ethics expert at Tufts University. How, Krimsky asked, is Heeger contributing expertise to Global Student if his involvement is limited to his ownership stake?
Krimsky said Heeger's part-ownership of the company is as troubling as any role he might play in its operations.
"To have someone in a senior leadership position at a university who has a financial interest or equity interest in a company doing business with the university is a boundary that should not be broken," Krimsky said. "The fact that the [regents] approve it may mean it's legal but doesn't mean it's ethical."
Others said the arrangement was acceptable, so long as the regents kept close watch over it.
"The president has taken the matter to the appropriate authorities for review and come away with the determination that his presence at [the company] with whatever holdings he might have is not in conflict with his duties," said Sheldon Steinbach, general counsel for the American Council on Education, an advocacy organization for colleges.
As partnerships between universities and the private sector proliferate, the debate is growing over the ethical rules for such arrangements. Companies sponsor more than $2 billion in research at U.S. colleges, and many university presidents have paid seats on corporate boards, though typically in industries with less stake in higher education than Global Student Loan.
University officials say Maryland created the research faculty exemption in 1990 partly to make it easier to recruit star faculty who might want to pursue private sector opportunities. As of last year, 56 research faculty had been granted exemptions.
"The idea was to move scientific discoveries into the commercial world," said former chancellor Donald Langenberg.
In 1996, the waiver was broadened to include university administrators who had a private stake in research they had done - as long as their role with the private sector was for "research and development purposes." Heeger is the only college president to receive the exemption.
Billingsley, who argued for the expanded waiver in Annapolis, said last week that the hope was that it would draw talented administrators such as Heeger to the system. "It's an opportunity for them to make money in addition to what they earn in salary," he said.
Sun staff writer Ivan Penn contributed to this article.