MOHELA wouldn’t be first state loan program sold to Sallie Mae

States are divided on going private with their education loans.
Friday, February 10, 2006 | 12:00 a.m. CST; updated 11:45 a.m. CDT, Tuesday, July 22, 2008

Before Gov. Matt Blunt unveiled a plan to sell some of the holdings of the Missouri Higher Education Loan Authority, some states had already passed off their student loan organizations to private companies, and others had declined to sell them.

Sallie Mae, one of the largest student loan holders in the country, was often involved in the proposed sales.

In 2004, Southwest Student Services, an education financier in Arizona, sold to Sallie Mae. In September 2005, the Arizona Higher Education Loan Authority entered into an agreement with national student loan provider Student Loan Xpress to offer private loans in addition to the federal loans AHELA offered.

“AHELA’s partnership with Student Loan Xpress was formed to fill the vacancy left in the secondary student loan market,” said Shelly Murphy, director of AHELA.

Indiana Secondary Market for Education Loans and KeyBank USA entered into a agreement this month. On each student loan, KeyBank will pay the origination fee, the 3 percent usually withheld from borrowers’ loan proceeds and given to the federal government.

The Virginia Education Loan Authority broke apart in 1996, with VELA legislation abandoned two years later. Sallie Mae, based in Reston, Va., now runs Virginia’s student loan operation.

Gene Cattie, the founder and former chief executive officer of VELA, became the senior vice president of corporate development for the USA Group of Sallie Mae in 1993. Cattie is now the higher education consultant for Nellie Mae, a subsidiary of Sallie Mae.

In contrast to states that have sold their student loan programs, the not-for-profit Massachusetts Educational Financing Authority was formed in 1982. MEFA serves state residents and out-of-state residents who attend college in Massachusetts.

“MEFA is a self-financing operation, free from privatization,” said Scott Prince, MEFA’s director of external relations.

The Pennsylvania Higher Education Assistance Agency rejected the $1 billion Sallie Mae offered in 2004 for Pennsylvania’s state student loan organization.

PHEAA’s board of directors chairman, Elinor Taylor, explained the sale rejection on the agency’s Web site, saying they would never sell to a company with “a track record of overcharging borrowers, laying off workers and gobbling up any organization that stands between students and a quest for bigger profits.”

Michael Cummins, the MOHELA director at the time of the PHEAA sale proposition, expressed his support of PHEAA’s decision to avoid selling to Sallie Mae.

In a letter to PHEAA, he voiced concerns regarding a for-profit company’s handling of student loans.

Two nights before Blunt went public with the proposed MOHELA sale, Cummins was fired.

MOHELA board members voted to replace him and to cooperate with Blunt’s efforts to sell the agency.

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