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Loan Sale Approved

January 31, 2006
By: Meghan Maskery and Jason Rosenbaum
State Capital Bureau

JEFFERSON CITY - The Missouri Higher Education Loan Authority board of directors voted unanimously Tuesday to sell about $2.4 billion in student loans to the highest bidder without legislative authorization.

The sale of about half its assets will generate an estimated $450 million that will fund Gov. Matt Blunt's "Lewis and Clark Discovery Initiative" for universities while retaining the existence of the government agency.

"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," said board chair Karen Luebbert at a press conference after the meeting in the governor's office.

She said any contract with a bidder would stipulate the same services and rates that current borrowers have with their loans. Luebbert and the governor, however, were less definite about whether there could be increases in the rates or charges for those who default on their loan payments.

Under the plan, some of the loans that MOHELA currently holds would be put up for sale to the highest bidder.

When asked how a private company could turn a profit with its share of loans while providing the same rates that the current non-profit MOHELA provides, Luebbert and Blunt said that was up to the company that buys the loans.

Currently, MOHELA uses the money it generates to keep interest rates low on student loans. The program also benefits from tax free bonds that a private company would not receive.

Last week, the governor had proposed a complete sale and shutdown of the entire MOHELA program.

That approach had generated criticism from both Republican and Democratic legislators.

The new plan, which retains MOHELA, softened some of the legislative criticism.

"I am pleased that this new plan addresses the questions and concerns that I and others have voiced regarding the ability of Missouri's students to continue to receive low interest loans, loan forgiveness and other targeted incentives," House Speaker Rod Jetton, R-Marble Hill, said in a prepared statement.

House Majority Leader Tom Dempsey, R-St. Charles said he is encouraged by the new plan after also having concerns about last's week's proposal.

"As I learned about the governor's plan, I thought it was interesting, but I was concerned about the impact on students' abilities to meet their educational needs," Dempsey said.

"The more participants in the market, the greater the pressure in keeping interest rates down and keeping costs down," Dempsey said. "They're still going to be providing low interest loans is a good development," he said about MOHELA.

But Senate Democratic Leader Maida Coleman, D-St. Louis, charged the latest plan was an effort to circumvent the legislature.

"I believe that that's a part of a plan of deceit that has come from the governor's office," Coleman said.

She said that just last week the governor had assured legislative leaders that he would go through a legislative process.

The plan adopted by MOHELA calls for $300 million for building construction, $100 million for scholarships, $20 million for endowed professorships, and $5 million to bring technological businesses closer to campus. $25 million would be available for other initiatives proposed by the governor.

MU will get the largest share of profits from the MOHELA sale with $87 million going toward a new Health Sciences research center, $2 million for a Life Science incubator and $3 million to a Plant Science research center.

Rep. Ed Robb, R-Columbia called the proposal, "the best of all worlds." He lauded the initiative's building construction proposals and said he would have supported the entire sale of MOHELA.

"This is a nice compromise," Robb said. "It preserves some of the guarantees for students, at the same time, it gives us a pool of money in which we can then invest into other much more valuable long-term assets."

For House Minority Leader Jeff Harris, D-Columbia, the MOHELA action came as a surprise.

"When the proposal changes from week to week, it's kind of hard to evaluate," Harris said.

He said he had been told last week by the governor that the legislature would vote on whether to sell the loan program.

"If the role of the legislature is now limited to determining how the money will be spent, let's make sure that we support the projects on the Mizzou campus," he said.

In a written statement, Sen. Chuck Graham, D-Columbia, said he was pleased the governor backed away from his original proposal to sell MOHELA.

"MOHELA is a great asset for Missouri students, and it plays a vital role in helping provide low-cost student loans," Graham said. "I look forward to working with Governor Blunt to ensure that the promised $92 million in capital improvement projects for Mizzou are actually funded."

The General Assembly started MOHELA in 1981 to buy loans from banks and sell them to students. The program currently provides loans to about 586,000 students.

Tuesday's meeting was announced on very short notice and was held in the governor's formal office. There was no debate by the board on the three-page, single-spaced resolution -- just a brief statement by the board chair.

The board then went behind closed doors in the office of the governor's chief of staff for more than 15 minutes.

When a reporter asked the governor's office about possible violation of the state's Open Meetings law, four of the seven board members left the closed-door session.

In another MOHELA development Tuesday, the governor's nominee to the board ran into a roadblock for Senate confirmation.

Sen. Joan Bray, D-St. Louis County, said she would not sponsor the nomination of James Mauz‚ who lives in Bray's district.

Under Senate tradition, a nomination is not taken up without the support of a nominee's senator.

Some Democrats have charged Mauz‚ has been the leader on the board pushing for Blunt's program. Because Mauz‚ was named to the board when the legislature was not in session, his appointment requires Senate confirmation within the first month of this year's legislative session.