Missouri College Construction to be Paid for by Student Loan Sale

Partisan politics has taken firm hold of a pending major sale of student loans aimed at financing $350 million worth of Missouri college construction. Republican Governor Matt Blunt is hot to trot for the pending three part deal. Democrat Attorney General Jay Nixon has been throwing the kitchen sink at it.

Here's the deal: Part I: the state's non-profit student loan agency, Missouris Higher Education Loan Authority (MOHELA), would sell hundreds of millions of dollars worth of existing student loans on the open market, most likely to for-profit giant Sallie Mae, and transfer the proceeds to a state economic development agency.

Part II: The state economic development agency would then dole out the profit money to a specific set of colleges for specific construction projects, including $94 million worth to the University of Missouri at Columbia.

Part III: In exchange, MOHELA would get $1.1 billion worth of bond authority for future student loans from the state economic development agency and a pledged "good faith effort" from the University of Missouri at Columbia to use MOHELA instead of its current provider, the Direct Loan program. MOHELA's state statutory authority would have to be expanded so that they could originate student loans. Right now, they just buy student loans from banks that originate.

Attorney General Jay Nixon says MOHELA, which is supposed to make college more affordable for families, shouldn't be liquidated. It shouldn't sell its assets for a bond commitment that future state leaders aren't required to respect. (Higher Ed Watch thinks Missourians call that buying a pig in a poke.) Under state law, MOHELA can't be used for purposes other then making college more affordable. In fact, a member of Nixon's staff even suggested that MOHELA Board members could be personally sued for violating their fiduciary duty if the deal goes forward. In response, MOHELA's Board suspended for two weeks their final sign off of the plan.

What's really going on here? Blunt sees a quasi-government agency that he doesn't control with lots of valuable assets and cash. It's not different from what Democrat Governors like Ed Rendell of Pennsylvania see in their states. Blunt though, also sees all those non-profit MOHELA employees and thinks they're likely to be Democrats. Most, not all, but most folks in education non-profits are Democrats. And Blunt sees big, new buildings - some no doubt with his name on them - at no taxpayer cost.

Nixon plans to run against Blunt in 2008. He sees Missouri under Blunt getting an "F" when it comes to college affordability. He genuinely is concerned about MOHELA drying up -- selling half of its assets for not much in return in order to stave off a takeover by Sallie Mae.

Higher Ed Watch doubts that the Missouri deal will go forward for a while. Why? Because MOHELA will have to give up two of their three plums in the deal. First, the University of Columbia campus cannot commit to funneling student business to MOHELA in exchange for construction funds. That's what section 435(d)(5) of the Higher Education Act calls an illegal "inducement." Someone is going to register an objection with the U.S. Department of Education.

Second, it's unlikely that Missouri legislative leaders will take up state legislation letting MOHELA originate loans. If they do, Democrats will surely try to attach an amendment authorizing stem cell research at universities receiveing MOHELA money or giving MOHELA business. And the stem cell issue in Missouri is radioactive for Republicans.

Washington, DC and Jefferson City could work together to make a version of this deal a reality. We offer a proposal here to do it that might be of interest to new political leaders ushered in by the coming election.

Regardless, for all the down low on Missouri's student loan sale and behind the scenes political machinations, check out this site run by a Show Me state journalist. He's knows as much about the MOHELA sale as any outsider.