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Financial loss leads loan agency to consider delay in payments

By DAVID A. LIEB
Associated Press Writer

Thursday, March 27, 2008

JEFFERSON CITY, Mo. (AP) — Financial losses have led Missouri’s student loan authority to consider whether it should delay a scheduled payment toward the state’s college construction program.

Under state law, the Missouri Higher Education Loan Authority is to make a $5 million quarterly payment to the state by Monday as part of a several year, $350 million college building plan.

But MOHELA board members have scheduled a meeting Friday to consider whether they can afford to make the payment.

The loan authority has lost $12.9 million this year, executive director Raymond Bayer Jr. said Wednesday, as it’s been affected by a national credit market crunch and a reduction in federal subsidies to lenders.

Bayer insisted the loan authority remains financially strong, but added it is nonetheless “feeling the pressures of the credit crisis.”

A 2007 law backed by Gov. Matt Blunt and Republican legislative leaders required the loan authority to pay $230 million to the state last September, plus $5 million in quarterly payments for the next six years. Most of that money is to finance new or improved buildings at public colleges and universities.

In exchange, the authority received a commitment of continued annual tax-exempt bonding allocation from the state, which helps hold down the financing costs for its student loans.

State law allows MOHELA’s quarterly payments to be reduced by the amount of interest the state has earned from the money it already has received from the loan agency.

Because of that credited interest, MOHELA met its first quarterly installment in December by paying about $3.1 million to the state, Bayer said.

Because the state has continued to earn interest on the money previously paid by MOHELA, the loan agency will need to pay only about $2.3 million to meet its second quarterly installment due Monday, Bayer said.

Bayer was one of five people appointed by the MOHELA board at its March 14 meeting to study whether the agency should make or postpone Monday’s payment. Bayer said the committee is to make a recommendation to the board at its meeting Friday, but he declined to say which way it was leaning.

The financial troubles already have led MOHELA to end its private loan and loan consolidation programs, decisions that could make it more difficult and costly for some students to finance their education.

The loan authority also has laid off 16 of its 271 employees and eliminated 23 jobs through attrition.

Bayer said the loan agency has eliminated company cell phones and cut back on travel expenses, among other cost-cutting moves. For example, Bayer said, he stayed at a $149 a night hotel last week when he went to a conference in Nevada instead of at the $299 hotel where the conference was being hosted.

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