HARRISBURG -- Gov. Ed Rendell is willing to consider privatizing the Pennsylvania Higher Education Assistance Agency after its board Wednesday gave six-figure bonuses to top executives that the governor called "outrageous."

The bonuses, which were as high as $180,857, were excessive and the money would have been better used for student grants, Mr. Rendell said during a news conference yesterday.

"Those bonuses, given the salaries those executives receive, are outrageous," he said. "That money could be used to give grants to students who really need [them]."

Mr. Rendell is following the lead of two state senators -- Jane Orie, R-McCandless, and John Rafferty, R-Montgomery -- who want to look into privatizing the agency.

That isn't the only option, though.

Mr. Rendell also wants to restrict how the agency spends money and to consider replacing board members.

However, 16 of PHEAA's 20 board members are appointed by the state Legislature, so any change in its structure would require legislative action.

Ms. Orie and Mr. Rafferty are asking for a Senate hearing this fall to study privatization and other options to force changes at PHEAA. Mr. Rendell said more than one private loan company, including the federal agency Sallie Mae, has inquired about taking over PHEAA.

Privatization is a bad idea, said state Sen. Sean Logan, vice chairman of the PHEAA board.

"A for-profit company is not worried about grants for student nurses or funding our other programs. They're worried about one thing: their shareholders," he said. "They might dump $10 million into our nursing program for the first year but then stockholders are going to say, 'No more. We want that in our dividends. We want that in our pockets.'"

PHEAA takes earnings from its worldwide student-loan business and reinvests it in Pennsylvania students. It also distributes an annual allocation of $275 million in taxpayer dollars, which goes directly to student grants, not for operational costs.

Mr. Logan said the hefty bonuses were necessary to help retain talented executives who could receive higher salaries in the private sector.

"I do think the bonuses are very, very high. They're nothing to sneeze at, but we need to pay people that so we can compete in the marketplace," he said. "To run the business side like we do, you have to have the best people."

If PHEAA didn't have highly paid executives to grow its loan business, 160,000 Pennsylvania students would receive less grant money and 36,000 current recipients would get no grant money at all, Mr. Logan said.

That excuse doesn't fly with Ms. Orie.

"When [PHEAA president and CEO] Dick Willey is looking at a salary of $280,000, that's sufficient. These people accepted their jobs knowing what the salaries were," she said.

"When you take a government job, you're in it for public service, not to fill your pockets. If these people think they can make more money on the outside, if they're unhappy with their salaries, they need to leave."

Mr. Willey's bonus was almost $181,000 -- or $16,500 more than the governor's annual salary. Executive vice presidents Timothy Guenther, Brian Lechner and James Preston each received $113,300 bonuses on top of $217,300 base salaries. In each case, the bonuses were about $1,000 more than last year's.

A fifth vice president, Kelly Logan, who joined the agency in January, received a bonus of $52,400 on top of a $201,200 salary. Ms. Logan is not related to the senator.

Together, the five bonuses totalled $573,800.

That's money that could have gone to needy students, Mr. Rendell and Ms. Orie said.

If it did, it would have amounted to another $2.50 in grant money for each recipient, Mr. Logan said.

"That $570,000 is a huge, huge number. It is," Mr. Logan said, "but would you rather students have $2.50 this year or have a lot less" later because the agency can't attract executives with enough experience to grow the student loan side?

"It takes experience in the industry to create product and compete in the marketplace every day. That's what Dick Willey and his team does," Mr. Logan said.

This is the second controversy over bonuses to state employees in the last year. Lawmakers like Ms. Orie are still fuming over $1.9 million in bonuses given to House Democratic staffers last year.

Now, she says, the PHEAA bonuses have made her beyond angry.

"Words can't describe how outraged I am," she said yesterday.

She and other Republican senators want a moratorium on bonuses for state workers. Mr. Rendell, though, doesn't want to go that far.

State employees who do exemplary work should be rewarded with modest bonuses, he said.

The bigger issue for him is PHEAA's lavish spending and its attitude toward using public money.

For example, the agency spent $860,000 over five years on posh retreats that included resort spa treatments, fancy dinners and falconry lessons. Later, it spent $400,000 on lawyers who waged an unsuccessful court battle to prevent those records from being disclosed publicly.

"I haven't seen a mind-set change to 'We're a public agency and we're going to act like a public agency,'" Mr. Rendell said yesterday. "If PHEAA is going to act like a private agency, let's privatize."

This isn't the first time the state has considered that kind of move.

In 2005, the PHEAA board rejected a $1 billion offer from its Reston, Va.-based rival, SLM Corp., better known as Sallie Mae. Sallie Mae would have taken over most PHEAA operations and managed $98 billion in student loans while the $1 billion influx would have funded new student aid programs.

Meanwhile, the state already is in the midst of auditing PHEAA's books. The financial review was prompted by news reports about the cost of the board's lavish retreats from 2000 to 2005.

The audit will look as far back as July 2004 to evaluate whether the agency is improving access to higher education. The audit also will evaluate compensation, benefits and expenses.

It's unclear when that audit will be complete, said Steve Halvonik, spokesman for Auditor General Jack Wagner.

"This is the first audit that's ever been done of PHEAA," he said. "Obviously, there's a lot of terrain to cover."

First Published: August 24, 2007, 3:00 a.m.