MoHELA lawsuit begins
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MoHELA lawsuit begins

Date: September 10, 2007
By: Sarah D. Wire
State Capitol Bureau

JEFFERSON CITY - The lead attorney in a lawsuit filed against MoHELA by two student loan holders said "a number" of other students have contacted him about being a part of the suit.

The suit begins Tuesday morning (Sept. 11) and asks a Cole County Judge to bar the state from using MoHELA funds for the statewide building-construction program.

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

Attorney John Lichtenegger, a former UM-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 had received MoHELA-backed student loans prior to the August 28 effective date for legislation authorizing the fund transfers.

The lawsuit claims that there was a legal expectation that any profits from those prior student loans would be used for loan forgiveness -- not for other projects like building construction.  Instead, the lawsuit argues that the transferred funds no longer will 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 Sept. 7 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," Will Shaffner, the agency's business director, said.

Shaffner said the board of directors agreed to transfer the funds by Friday but the funds have not been transfered yet. 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 subsidiaries to lenders and increase grants to needy students.  Months ago, one of MoHELA's private financial consulting firms had 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, John Greer cast the only dissenting vote. He has said previously the sale would not be in the the best interest of MoHELA.

Greer was unavailable for comment.

The agency decided Friday to transfer $230 million to the state under legislation passed Aug. 28. After the initial lump payment, MoHELA would be required to make quarterly payments of $5 million over the next six years, if it is financially sound to make the transfer.

Shaffner said if the judge does not grant an injunction but the student's 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," State Higher Education Commissioner Robert Stein said.