JEFFERSON CITY — Gov. Matt Blunt calls it an innovative way to finance the buildings where the college students of the future will be taught. Skeptics fear it could make it more difficult for those future students to find affordable loans.
But there seems to be agreement on this: Blunt’s plan to siphon $350 million from Missouri’s student loan agency for campus projects hasn’t been done before. And the nation’s student loan industry is watching closely as Missouri lawmakers decide whether to ratify it.
The proposal will be a key part of the 2007 legislative session that starts Wednesday. Blunt is even considering calling a special session — devoted solely to the topic — that would overlap with the regular session. Doing so could allow his plan to take effect more quickly.
The Missouri Higher Education Loan Authority was created a generation ago as a way to make student loans more available and affordable in a marketplace where there was greater demand than the private sector could supply.
As part of its mission, MOHELA returns a portion of its profits to student borrowers through perks like discounted interest rates and loan forgiveness programs.
Under Blunt’s plan, MOHELA insists it would continue to offer those student loan benefits. But a portion of its profits — coming partly from the sale of some of its student loans — would be passed through the state for the campus building projects.
In exchange for its money, MOHELA would get a 10-year pledge of continued tax-exempt bonding allocations from the state, which would allow it to underwrite more student loans. The University of Missouri also would make a “good-faith effort” to consider increased use of MOHELA loans.
Both the use of student loan agency money for college buildings and the pledge of a long-term bonding stream seem to be unique, said Brett Lief, president of the National Council of Higher Education Loan Programs.
“I’m unaware of anything like this, although from a public policy perspective it may not be that bad of a template for the future,” Lief said.
As private-sector lenders like Sallie Mae and Nelnet are gobbling up other student loan holders, the Missouri plan could allow a way for quasi-governmental loan agencies to satisfy the demands of politicians eager to tap into their cash while still allowing the agencies to survive.
Others, while concurring in the novelty, aren’t so sure of the merits.
“I think the MOHELA deal is a harbinger for other states,” said Michael Dannenberg, director of education policy at the New America Foundation think tank in Washington, D.C.
“But the big problem with the MOHELA deal is, it shows governors how student loan assets can be perverted into pet college construction projects instead of programs that increase college affordability or access,” Dannenberg said.
Illinois already has tapped in to the assets of its student loan portfolio, although not to the extent of the Missouri proposal nor for the same purpose.
Like in the Missouri plan, the Illinois agency is selling some of its loans to come up with the money, said ISAC spokesman Randy Erford.
The Pennsylvania Higher Education Assistance Agency turned back a takeover attempt by Sallie Mae a couple of years ago. Last year, PHEAA’s president, Richard Willey, wrote Blunt strongly discouraging him from his original proposal to sell MOHELA outright.
While top officials at Missouri’s student loan agency are embracing the new plan as a winning deal, some officials at other state-sponsored student loan agencies aren’t so enthusiastic about the precedent.
“All those infrastructure programs are great ideas, and there’s a need for that,” said Keith New, a spokesman for the Pennsylvania agency, “but to take money away from students who are struggling to pay for an education may not be a great idea.”
Staff at Missouri’s agency say students and parents should not fret about losing their good loan arrangements. They say the particular funds targeted to be transferred under Blunt’s plan likely would have gone toward the continued expansion of the agency’s $5.9 billion in assets — not toward its loan forgiveness programs.
The nonprofit Maine Educational Loan Marketing Corp. sold all of its loans on the private market in 2000. Three years later, Maine lawmakers re-created a state-sponsored student loan program.
“We were finding that Maine residents were not getting the benefits of the best possible student loans in the marketplace,” said Beth Bordowitz, general counsel for the Finance Authority of Maine.
After Blunt proposed in January 2006 to sell MOHELA’s assets, MOHELA’s board responded with an alternative to keep the agency intact while still giving the state some of its money. That plan, revised again, failed in the legislative session that ended last May.
But Blunt and MOHELA staff kept revising their proposal, even as legal concerns from Attorney General Jay Nixon resulted in mass resignations from the MOHELA board. The latest version, agreed to last September, can take effect only if the Legislature also signs off on it during the 2007 session.
Plenty of objections remain about both the legality and the merits of the plan, especially from Nixon and some Democratic lawmakers.
But Lief, who seemed skeptical last year of an outright sale, said the passage of time has improved the deal.