MOHELA board votes to sell some student loans

~ Gov. Matt Blunt, who originally wanted to sell the authority, quickly embraced the plan.

JEFFERSON CITY, Mo. -- The board of Missouri's college loan authority voted Tuesday to sell about half of its roughly $5 billion in loan assets to generate money for Gov. Matt Blunt's college construction and endowment plan.

Blunt quickly embraced the new plan, which would keep intact the nonprofit Missouri Higher Education Loan Authority, or MOHELA, while generating slightly more than Blunt's original proposal to sell MOHELA outright for a projected $425 million.

Some lawmakers, economists and college loan officials had raised concerns about whether students would get fewer breaks and pay higher rates on their loans if the nonprofit MOHELA was sold to a private entity. Blunt had stressed that those benefits could be continued.

The governor teamed up with MOHELA officials Tuesday to reassure students they would not suffer under the new plan.

"This is a plan that we believe will be beneficial to our students and our state," said MOHELA's board Chairwoman Karen Luebbert, of Chesterfield. "This will not increase MOHELA student loan rates, nor will it detract in any way from our industry leading borrower benefits to students and families in Missouri."

Blunt praised the board for working over the weekend to come up with a plan that "is in the best interest of Missouri students" and "eliminates all objections voiced towards our proposal."

The board of directors of MOHELA, which voted last week to cooperate with the governor, endorsed the new plan without any public discussion during a brief meeting Tuesday in Blunt's Capitol office.

The new plan calls for MOHELA to seek competitive bids for $2.4 billion in consolidation loans that it currently holds. In the meantime, MOHELA would continue to buy about $1 billion in new loans, with the plan calling for MOHELA to sell an additional chunk of loans in the future.

Although MOHELA's assets would temporarily shrink, its board members said MOHELA's mission of providing low-cost loans to Missouri students would remain unchanged and its value would quickly build back up. Future college graduates could still get discounted interest rates on MOHELA loan repayments, and the bid requests would stipulate that existing benefits remain in place for the loans that are sold.

It was unclear Tuesday exactly how many of MOHELA's 586,000 loans would be sold.

Founded by a 1981 state law, MOHELA grew to become the nation's 13th-largest student loan holder and the fourth largest among state-based student loan agencies, according to federal rankings from 2004. The discounts it offers students also rank among the best nationally, according to the National Council of Higher Education Loan Programs.

Blunt's original proposal would have required legislative approval both for the sale of MOHELA and for the spending of the proceeds. Under the new plan, MOHELA's board would sell a portion of its loan portfolio without need of legislative action. But lawmakers would still have to approve the state expenditures of those proceeds.

Because MOHELA can act on its own, the loan sale can occur more quickly and the state would get $210 million as soon as Sept. 30. Another $240 million would flow to the state in 16 quarterly installments of $15 million each beginning Dec. 31 and running through Sept. 30, 2010.

The revised plan sticks to the general spending proposal outlined by Blunt last week:

-- $300 million for 20 university construction projects around the state.

-- $100 million for a new student scholarship endowment.

-- $20 million for endowed professorships.

-- $5 million for an endowment to entice technology businesses to college campuses.

The additional $25 million to be generated under the new plan would go toward unspecified gubernatorial initiatives.

The agency's interim executive director, Raymond Bayer Jr., said the partial loan sale is projected to generate more than the sale of the whole agency because the ongoing value of MOHELA is greater than its liquidation value would be. Blunt also said that the original $425 million figure was a conservative projection.

"The advantage this has is that the state gets a good set of capital to put into higher education, but the ongoing value ... is still going to be there," said MOHELA board member James Ricks, of Cape Girardeau.

Some legislators who had raised concerns about Blunt's original proposal -- including House Speaker Rod Jetton, R-Marble Hill, and Sen. John Loudon, R-Chesterfield -- expressed support for the latest plan.

"It appears that MOHELA will remain intact and be able to continue to provide the services to students it has in the past," said Jetton, a MOHELA loan recipient who said his final few hundred dollars were waived by MOHELA a few years ago. "I'm pleased, because that was a big sticking point for me."

Other lawmakers remained skeptical.

"It looks like a major leap in reclaiming good sense, but I don't know that," said Sen. Joan Bray, D-St. Louis County, adding she wanted more details.

Sen. Rita Days, D-St. Louis, said she was concerned the loans would be sold without legislative approval.

"That's really troubling," she said. "There's no oversight; there's no opportunity for us to hash this out."