JEFFERSON CITY — Missouri's student loan authority has fallen $12.5 million behind in its payments to a statewide college construction program.
Under a 2007 law backed by Gov. Matt Blunt, the Missouri Higher Education Loan Authority is to pay the state $350 million over six years to finance improvements at public colleges and universities. But the agency can delay its quarterly payments if they would negatively effect its finances or its services to borrowers.
The agency had been scheduled to make a $5 million quarterly payment by the end of December. But because of financial strains, the agency's board decided Tuesday to delay the payment — as it has done, in whole or part, each quarter of 2008.
Missouri's student loan agency, along with others nationally, has been hampered by a credit market crisis that has made it difficult to package and sell its loans for a profit. A 2007 federal law also cut the subsidies available to student lenders.
The Missouri loan agency has more than $3.5 billion in failed auction-rate bonds, which its investors have been unable to sell and the agency has been unable to refinance, Executive Director Raymond Bayer Jr. said Wednesday.
In what Bayer described as a first-of-its-kind transaction in the student loan industry, MOHELA plans to sell some of its student loans in order to buy back and cancel a portion of the auction-rate bonds.
The board on Tuesday approved the initial sale of $369 million in student loans to cancel an equal amount of bonds. Within the next month, the agency plans to sell an additional $1 billion worth of student loans to cancel auction-rate bonds, Bayer said.
The swap will diminish by more than one-fifth MOHELA's current $5.1 billion in loans owned.
But Bayer said the deal will give the agency greater cash flow and improve its equity-to-assets ratio, an important step toward being able to issue new debt in the future.
The loans being sold include those held by both out-of-state residents and those who attended Missouri colleges. Bayer said MOHELA will continue to service the loans, meaning the borrowers should see no change in how they make their payments.
Missouri's student loan agency had said previously that it ended its fiscal year June 30 with an operating loss of $2.2 million — its first annual loss since its creation in 1981. But Bayer said Wednesday that accountants required some of the interest payments to be reported in the next fiscal year, meaning the agency showed a $5.5 million profit.