MOHELA to sell $5 billion in loans
Sunday, February 5, 2006
The loan authority won't have to lay off any of its 280 employees.
The not-for-profit Missouri Higher Education Loan Authority will sell some $5 billion in student loans over the next three and a half years to generate $450 million in profits to fund higher education projects and programs in the state, the authority's interim director says.
Under the plan, backed by the MOHELA board and Gov. Matt Blunt, the authority would sell about $2.4 billion in consolidation loans later this year or about half of its roughly $5 billion worth of student loans.
At the same time, it would buy about $1.5 billion in student loans. Within a year, MOHELA expects it will be buying about $2 billion in student loans annually as it builds back up its financial portfolio.
Over the next three years, MOHELA expects to sell another $2.5 billion to $3 billion in student loans to generate the money needed for higher education, interim director Raymond Bayer Jr. said.
The not-for-profit loan authority was established in 1981 to underwrite student loans at rates lower than conventional interest rates by using tax-free bonds. It has grown into one of the nation's largest and best-run student-loan authorities, state officials said.
MOHELA provides lower interest rates on student loans for nurses, teachers, social workers, state government employees and law enforcement officers. It also has forgiven students' remaining debt near the end of the loans' payback period as part of a policy to ease the financial burden on college graduates.
"Last year we forgave $10 million to $12 million in debt for Missouri residents," said Will Shaffner, associate director of business development at MOHELA.
The initial sale of consolidation loans is expected to generate $2.55 billion, officials said.
Other loan companies are willing to buy student loans at more than the amount of the principal because of the interest payments they can earn on the debt.
If MOHELA makes $2.55 billion from the initial sale of loans, it will use $2.4 billion to retire some of its bond debt or invest in new loans that would be backed by bonds. The authority then would have a profit of about $150 million to turn over to state government to fund higher education projects.
The financial move also could generate an estimated $60 million in savings by retiring some of MOHELA's bond debt. That money also could go to fund higher education projects, bringing the total available funding to $210 million, officials said.
Future loan sales would be necessary to generate the remaining $240 million that the MOHELA board has pledged to provide the state.
"We are always looking at ways we can return money to higher education," said Bayer, the interim director.
The plan would generate $25 million more than Blunt's original plan, which proposed selling all of MOHELA's loans and closing the not-for-profit authority to generate an estimated $425 million.
Bayer said selling loans over a period of years can generate more money than a one-time liquidation.
It makes sense to sell consolidated loans because they are the most marketable, he said.
Consolidated loans involve debts owed by students who have graduated from college and are earning a living. That makes them lower-risk loans.
MOHELA uses a national loan company to service those loans, he said.
As a result, the sale of consolidation loans won't affect MOHELA staff, Bayer said. The loan authority, based in Chesterfield, Mo., won't have to lay off any of its 280 employees.
MOHELA employees currently are looking at how best to sell consolidation loans. The loans could be sold as a single package or divided up into several packages, depending on which arrangement would command the best price, Bayer said.
It could take six to eight weeks before MOHELA would be ready to advertise for bids.
Bayer estimates it will be at least late June before any loans will be sold. The process could take until August, he said.
Missouri has more than 150 post-secondary public and private schools. More than 70 percent of those primarily use MOHELA for student loans.
MOHELA currently handles more than 600,000 student-loan accounts.
335-6611, extension 123