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Thursday, March 13, 2008


Less than a year after the Republican-controlled General Assembly pushed through Gov. Matt Blunt’s plan to use Missouri Education Loan Authority assets to pay for capital projects, the agency is losing money for the time since it was created in 1981. The St. Louis Post-Dispatch reported on March 7 that MOHELA has laid off 16 employees and is letting another 23 vacant jobs go unfilled as a result of its financial problems.

It took Blunt two legislative sessions to win approval of his controversial MOHELA proposal, the final version of which requires the agency to turn over $350 million to the state. Before last year’s change in the law, MOHELA’s assets had been off limits to lawmakers.

In additions to the revenue MOHELA lost as a result of funding Blunt’s plan, the ripple effects through financial markets from the national subprime lending crisis is contributing to MOHELA’s problems.


PGAtkinson said...

As a former employee of MOHELA, believe me when I say the Blunt deal has NOTHING to do with the company losing money. It has to do with two things 1)The current problems in the bond market caused by the subprime mortgage mess (causing an increase in the company's cost of doing business), and 2)A reduction in the Federal subsidies given to lenders of FFELP student loans (a reduction in the company's income). Either situation by itself would have been manageable, but together it is proving too costly to absorb without making cutbacks.

The Blunt deal is helping MOHELA because in it, the company received guaranteed access to tax exempt bonds through the state. This type of financing is less expensive than the taxable bonds many student loan companies must use to finance their lending. And MOHELA can and may very well suspend paying future installments on the Blunt plan if doing so is to the detriment of the company.

When you try to politicize a matter as black and white as this, you skew the facts and do all your readers a disservice.

Rep. Mike Daus said...

The issue was politicized when Gov Blunt started removing members of the board who disagreed with his plan to use MOHELA assets to pay for higher education 'brick and mortar' improvements.
I, along with the vast majority of residents in the 67th district believe that MOHELA assets should be used solely for helping our young adults pay for college education. General Revenue money should be used to pay for college campus improvements. The money is always there in GR, it's just a matter of setting your priorities. If your priorities don't include higher education projects, fine, but don't start dipping into other funds that have been set aside for other purposes.
I’m not going to use my sons’ MOST account to pay for a new computer for them to use. Although that purchase may help them learn that’s not the purpose of the MOST account. We should have kept our hands off of the MOHELA money.
As far as doing a disservice, I think you would have to agree that providing my constituents a place to comment on the issues, whether they agree or disagree, is not doing a disservice.

PGAtkinson said...

That may all be true, but the connection you made in your initial post was that Lewis & Clark had something to do with MOHELA losing money in the recent months. That is just plain wrong. That is the disservice I speak of because you don't address the real problem - the economy.

It's the economic environment and not gov. Blunt's plan that is causing this situation. If MOHELA was the only student loan company having this problem, then you may have a point, but every company in the industry is facing these same problems - not just MOHELA. In fact, a lot have just closed their doors because they are not in as good a position as MOHELA.

I definitely didn't agree with the plan. It was ill-conceived from the start and caused a lot of disruption in the company at a time when their energies could have been put to much better use. It also caused a change in leadership which is also having big consequences.

A better argument can be made that the sale of assets was a good thing in light of the changes in FFELP regulations and the bond market crisis going on right now (of course gov Blunt couldn't have foreseen this).

1) The sale agreement guaranteed MOHELA access to tax exempt bonds which is a huge cost savings vs having to finance the purchase of loans through taxable structures. This is a huge benefit for MOHELA and part of the reason they're even able to remain in business.

2)Because of the newer, more strict bond requirements being placed on companies like MOHELA, they are having to shrink the size of the company to adhere to these requirements and better manage this difficult financial period (which the sale obviously helped in doing).

The assets sold under the gov's plan would do MOHELA little good today. The revenue would still be coming in, but they would weigh the company down at a time when it's necessary to shrink the size of the company. MOHELA got an unprecedented amount for they loans they sold under gov Blunt's plan. Today, they would be lucky to find anyone who would have the capital to even buy their loans.

You stated, "In additions to the revenue MOHELA lost as a result of funding Blunt’s plan, the ripple effects through financial markets from the national subprime lending crisis is contributing to MOHELA’s problems." This is just not right. The subprime lending crisis is the primary contributing factor and changes in the lender subsidies is also affecting MOHELA's bottom line. Blunt's plan has nothing to do with it. In fact, the current situation is much worse for the company than Blunt's plan ever was.

Anonymous said...

They can't say they weren't warned

By John Greer


In the adult world, where big mistakes have real consequences, there is little joy in being able to say, "I told you so." But when it comes to the Missouri Higher Education Loan Authority, I and many others warned Gov. Matt Blunt and the Legislature against raiding the authority's assets during these times of growing economic uncertainty. Our warnings went unheeded.

Late last month, the other shoe finally dropped when the MOHELA board of directors announced it would not be able to pay the state the full quarterly payment called for in the governor's plan. After years of profitable expansion, MOHELA suddenly found itself $2.3 million short of the scheduled $5 million payment.

Notwithstanding claims of its management to the contrary, MOHELA's sudden collapse to the brink of insolvency is the direct result of the governor's raid on its assets.

At a January 2007 hearing of the state Senate's education committee, I watched a parade of witnesses testify to the eagerness of colleges and universities to spend the assets MOHELA painstakingly had amassed over the years. MOHELA executives then assured the committee that the authority would have no trouble paying the $350 million specified in the governor's Lewis and Clark plan.

Finally, I tried to bring at least some measure of reality to the proceedings — based on my more than 30 years as a banker and more than 13 years as a member of MOHELA's board. I told the committee that stripping $350 million out of MOHELA would put the institution immediately into the red. I said that MOHELA would lose millions of dollars the very first year after the plan was approved — and every year after that. I believed that the plan would divert assets from MOHELA's core mission of enhancing access to higher education for all eligible Missouri students and, worse, that it would threaten MOHELA's very existence.

No one listened.

I also warned that it was essential for MOHELA to marshal its assets to be prepared to react quickly to whatever changes occurred in federal law regarding student loans — changes being considered by Congress at that very moment. The governor's plan, I said, would leave MOHELA without financial liquidity when it would need it most.

No one listened.

I was not alone in predicting that MOHELA might not survive the raid on its assets. Former state senator Wayne Goode and former MOHELA board member Allan Purdy, two visionaries who had helped create MOHELA, were similarly concerned. So was Missouri Attorney General Jay Nixon. Most ominously of all, Liscarnan Solutions, MOHELA's well-compensated financial analysis consulting firm, suddenly abandoned its support for the governor's plan and declared that MOHELA might not be able to make the payments that would be required of it.

Again, no one listened.

Now MOHELA hovers perilously close to failure. With 24 quarterly payments spelled out in the governor's plan, MOHELA could not even make the second one before having to cry "uncle." MOHELA already has lost more than $12 million this year, after years of $20 million to $25 million of annual growth. And following years of high-risk debt management practices, MOHELA is forced to try to refinance more than $1 billion of debt in today's very difficult market.

The bottom line is there is a very real risk that MOHELA may not survive until the fall, and it may never resume its payments to the state. If it does survive, MOHELA will be a mere shadow of the vibrant, growing company it was in late 2005 when the governor first set his sights on its $5.7 billion in assets. Perhaps the best anyone can hope for now is a smaller MOHELA, one that will be able to function but that will provide less financial help to fewer students.

I was not the only MOHELA board member to speak out against the plan when it first surfaced in January 2006, but I was the only one whose term lasted long enough to see it put in place. By the time the governor replaced me on the MOHELA board in the fall of 2007, he already had replaced the other voices of dissent and had engineered the replacement of the MOHELA executive director who had expressed doubts about the plan.

When MOHELA's executives try to blame its financial crisis on the recent upheavals in the credit markets, please remember that the authority already was well in the red before the roof fell in on the credit market in February.

Yes, the credit crisis and the changes in student loan laws enacted by Congress have made the situation worse. But these were precisely the kinds of risks about which we warned the governor and the Legislature. Stripping MOHELA of all its available cash has limited its ability to maneuver through such difficulties. Skyrocketing legal fees and insurance costs associated with the governor's plan have added to MOHELA's burdens.

Before buying the spin of Blunt administration apologists, ask yourself this: Would MOHELA — and the students and parents it was created to serve — be better off or worse off today if the $235 million it gave the state just last fall still were available to help qualified Missouri students afford the cost of higher education?

John Greer is a retired banker from Marshfield, Mo. He served on the MOHELA board from 1993 to 2007.