Bill would allow MOHELA to originate loans

JEFFERSON CITY - A state Senate bill allowing the Missouri Higher Education Loan Authority to originate its own student loans would ease the pressure fueled by the credit crunch, a MOHELA director has said.

"The recent credit crisis could affect students as early as this fall," said Ray Bayer, executive director of MOHELA. "The entire student loan industry is affected by the credit crisis. In the last couple months, we have lost money."

The bill would give MOHELA 10 percent of the money generated from student loans each year, allowing the agency to originate its own student loans rather than work through lenders. The plan has been proposed in the past three legislative sessions.

Unlike the direct student loan program that the University of Missouri-Columbia participates in, MOHELA currently works through the federal Stafford loan program. It issues tax-exempt bonds to buy loans from banks and then distributes those loans to students. Under the proposed bill, MOHELA would be able to bypass private lenders.

"MOHELA can earn on these loans," said Sen. Rob Mayer, R-Dexter, who is the bill's sponsor. "They haven't been able to originate Stafford loans before."

Sen. Rita Days, D-St. Louis County, said the legislature is headed down the wrong path with MOHELA, especially after the sale of its assets last year, which will fund capital improvement projects at universities statewide.

"We stripped them of a great income," she said. "The original intent of MOHELA is to provide low-interest loans to students who want to attend college. It is not intended as a capital proposal to build buildings on various universities."

But Days said she hopes this plan will help the agency with its recent financial problems, which have been instigated by low interest rates.

"I understand how we have to do it," she said. "Hopefully it will give the agency some kind of stability."

The loan agency worked with the Missouri Bankers' Association to decide on the 10-percent figure, which would give MOHELA up to $200 million yearly.

"It's to our benefit to keep MOHELA strong," said Bill Ratliff, executive vice president of the Missouri Bankers' Association. "This amount will hopefully keep both of us in business."

Ratliff said a solid partnership with MOHELA helps Missouri banks build good relationships with students.

"We're hoping to keep those people as customers for the next 40 years," he said.

Ratliff said coming to a compromise with MOHELA was "like a marriage with difficulty," but Bayer said this agreement serves both the students and lenders.

"This is a meet-in-the-middle type thing where it didn't hurt lenders," Bayer said.

The bill is on the Senate calendar and will likely be voted on this week.