Attorney General Jay Nixon's Statement on MOHELA's Elimination of Student Benefit Programs

JEFFERSON CITY, Mo. -- Last Friday afternoon, with little warning and no public input, members of the MOHELA Board abandoned its mission of putting Missouri students first and voted to eliminate several critical student benefit programs.  As a result, Missouri students now will be forced to pay as much as 3% higher rates on their student loans.

Specifically, the agency voted to eliminate the Public Service Reward Program and Rate Relief Program, which provide benefits to thousands of future Missouri teachers, police officers and nurses.  The elimination of these benefit programs has left MOHELA virtually indistinguishable from for-profit loan agencies such as Sallie Mae and NelNet.   

In response, Attorney General Jay Nixon released the following statement:

"During these difficult economic times, too many middle-class families are getting squeezed out of a college education.  Unfortunately, these Missouri families were delivered yet another crushing blow last week, and now students will be forced to pay higher monthly loan payments.  With tuition skyrocketing at our colleges and universities, this was a major step in the wrong direction.  

"When Gov. Blunt raided MOHELA’s assets, the one thing he assured us was that it would cause no harm to Missouri students.  It was obvious -- at least to those of us who fought the MOHELA raid from the beginning -- that Missouri students would end up paying the price.  And now they are.

"I believe a college education is a key to achieving the American Dream, and I am more committed than ever to creating a pathway to a four-year degree for every Missourian who is willing to work hard and play by the rules.  We must put the dream of a college degree within reach for every Missouri family."

According to a St. Louis Post-Dispatch article, Gov. Blunt "vowed that students would have as good or better a loan program as they have now" after the MOHELA raid took place. "I would not move forward unless I were absolutely sure this would be the case," Blunt said at the time. [St. Louis Post-Dispatch, 1/27/06].

At the Friday afternoon meeting, the MOHELA Board voted to end programs that provide reduced interest rates to Missouri students who plan to enter public service and who agree to make automatic monthly payments from their checking or savings accounts. 

Additional information on the eliminated student benefits programs is available here:

Public Service Reward Program: https://www.mohela.com/borrower/manageAccount/psrp.aspx

MOHELA Rate Relief: https://www.mohela.com/common/raterelief/default.aspx

Below is a column by former MOHELA Board member John Greer that ran in the St. Louis Post Dispatch last month. It outlines his repeated attempts to warn the Blunt administration about the likely consequences of the sell-off:

They can't say they weren't warned

By John Greer, former MOHELA Board Member
St. Louis Post-Dispatch
04/10/2008
http://www.stltoday.com/stltoday/news/stories.nsf/editorialcommentary/story/8700D486E9ED033D86257426007E4C99?OpenDocument

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.