Students hope court approves class action lawsuit to block MOHELA sale

Monday, September 10, 2007 | 7:06 p.m. CDT; updated 1:44 p.m. CDT, Tuesday, July 22, 2008

JEFFERSON CITY — The lead attorney in a lawsuit filed against the Missouri Higher Education Loan Authority by two student loan holders said “a number” of other students have contacted him about being a part of the lawsuit.

The hearing asking a Cole County judge to bar the state from using MOHELA funds for a statewide building-construction program begins Tuesday.

The lawsuit, filed by two students from Columbia, seeks to throw out the law authorizing fund transfers and requests an injunction to halt the transfer of funds.

Attorney John Lichtenegger, a former University of Missouri System curator who is representing the two students, said some students have already signed up to be a part of a possible class action lawsuit and other students have expressed interest.

Lichtenegger did not provide an exact number of interested students. The current lawsuit is seeking class action status on behalf of all former students who received MOHELA-backed student loans prior to Aug. 28, the date legislation authorizing the fund transfers became effective.

The lawsuit claims that there was a legal expectation that any profits from the prior student loans would be used for loan forgiveness —— not for other projects such as building construction. The lawsuit argues that the transferred funds will no longer be available for student loans, interest rate reduction, fee reduction or loan forgiveness.

The motion, filed by Lichtenegger, said the loan authority’s purpose is to lower barriers to higher education and there is no language in Missouri statute that instructs it to help build university infrastructure.

The MOHELA board of directors voted 5-1 on Friday to go ahead with the transfer despite the lawsuit and the recent passage of student loan legislation at the national level.

“MOHELA would definitely comply with whatever the judge decides,” said Will Shaffner, the agency’s business director.

Shaffner said there are no plans to transfer the money before the hearing Tuesday.

Also on Friday, Congress passed a change in federal support for student loans which would cut subsidies to lenders and increase grants to needy students. Months ago, one of MOHELA’s private financial consulting firms warned the state agency against transferring its assets because of the possibility that changes in federal law would cut the agency’s profit-making capabilities.

Shaffner said the federal legislation will not affect access to the student loan market and won’t affect past loans.

In Friday’s MOHELA meeting, board member John Greer cast the only dissenting vote. He has said previously the sale would not be in the best interest of MOHELA.

Greer was unavailable for comment.

The agency decided Friday to transfer $230 million to the state. For the next six years, MOHELA would be required to make quarterly payments of $5 million, if it is financially sound enough to make the transfer.

Shaffner said if the judge does not grant an injunction but the students win the case, it is unclear if the state will have to give the money back.

“We’re all just waiting for the hearing to see what happens,” said Robert Stein, commissioner of the Missouri Department of Higher Education.

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