MOHELA delays college building payment

Tuesday, September 23, 2008 | 10:20 a.m. CDT; updated 12:13 a.m. CDT, Wednesday, September 24, 2008

JEFFERSON CITY— Financial strains have caused Missouri's student loan agency to again fall behind on its payments to Gov. Matt Blunt's college construction program.

A 2007 law requires the Missouri Higher Education Loan Authority to pay $5 million quarterly as part of a six-year plan to transfer $350 million to the state.

But the law lets the agency delay payments if making them would negatively affect the services provided to borrowers or put the agency at financial risk.

Executive Director Raymond Bayer Jr. said the MOHELA board voted this month to pay $100,000 to the state, which would be applied to its missed June payment. That means the agency still will owe $3.6 million on its June payment and will continue to owe the full $5 million it was supposed to pay by the end of September.

Missouri's student loan agency — along with others nationally — has been hampered by a credit market crisis that has made it more difficult to package and sell its loans for a profit. A 2007 federal law also cut the subsidies available to student lenders.

Bayer said in a report to the agency's governing board that MOHELA could face even more financial challenges, including the potential for ratings downgrades on some of its bonds.

The Chesterfield-based loan agency has an equity ratio of 1.89 percent, which Bayer said makes it "significantly undercapitalized" in a credit market that now requires an equity ratio of between 5 percent and 7 percent to issue new debt.

The agency ended its fiscal year June 30 with an operating loss of $2.2 million — its first annual loss since its creation in 1981.

"On the one hand, I can confidently state that MOHELA is financially sound and has sufficient liquidity to meet the immediate borrowing needs of Missourians pursuing higher education," Bayer said in a written report to the governing board. "On the other hand, MOHELA continues to endure a seemingly endless onslaught of market-related challenges."

The loan agency made an initial $230 million payment to the state in September 2007 under what Blunt has called the Lewis and Clark Discovery Initiative. Most of the money is be used to finance new or improved buildings at public colleges and universities.

In exchange for the agency's money, the 2007 law granted the loan agency a commitment of annual tax-exempt bonding authority from the state, which helps hold down the financing costs for its student loans.

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