Utah is getting out of the student loan servicing business, which could result in the creation of a $289 million endowment for scholarships and grants for Utah students.
Earlier this month, the Utah Board of Higher Education authorized the sale of the Federal Family Education Loan Program portfolio administered by the Utah Higher Education Assistance Authority. The authority is a subsidiary of the Utah System of Higher Education.
Financial advisers estimate the net proceeds of the sale of the federal student loan portfolio could be between $207 million and $220 million, according to a document prepared for an upcoming legislative meeting.
The higher education board is recommending combining $68.7 million in cash currently held by the assistance authority to create an endowment “to hold these released funds and to reinvest the profits from the successful UHEAA program back into Utah students.”
The resolution also authorized Utah Commissioner of Higher Education David Woolstenhulme to work with state lawmakers to establish an endowment with the sale proceeds.
The Utah Legislature’s Higher Education Appropriations Subcommittee was briefed on the proposal during its meeting Tuesday.
Rich Amon, the Utah System of Higher Education’s chief financial officer, told committee members that the Board of Higher Education spent nearly a year studying the state’s role in the student loan servicing business before voting to sell the portfolio on Oct. 1. The decision presents a rare opportunity for the state’s higher education system, he said.
“The headline here is, ‘The market has changed for student loans.’ What we have now is an opportunity that only comes up every several decades, as we reposition this business portfolio,” Amon said.
Woolstenhulme said on an average market year, the endowment would generate about $12 million annually. Higher education officials envision requesting from lawmakers annual appropriations from the endowment to support the system’s top priorities such as college access, affordability and completion.
That could come in the form of scholarships and grants, assisting adult learners or expanding the Utah College Advisor Corps, which help high school students make successful transitions to higher education under the guidance of “near peer” college access advisers who work in their high schools.
“We would hope these revenues generated off the endowment could do just that,” he said.
Sen. Kathleen Riebe, D-Cottonwood Heights, asked whether the state getting out of the student loan business would hinder Utah students’ ability to obtain loans.
“The federal direct loan program is in place. It is the primary loan program for all undergraduate and graduate students. They offer undergraduate, graduate and Parent PLUS loans. I don’t see that there’s a problem or concern with the availability of loans to students,” said David S. Schwanke, executive director of the Utah Higher Education Assistance Authority.
“Backstopping that would be a much smaller market of private loans offered by private banking institutions,” he said.
According to an earlier statement from the state higher education system, uses of funds in an established endowment will require legislative approval “so the amounts and uses are yet to be determined.”
The portfolio may be sold to any other federal student loan servicer in the United States. Impacts on employees, borrowers or the organization “will be determined over the next several months,” according to the statement.
Harris Simmons, chairman of the higher education board, said following the vote, “We hope and expect that this is going to produce incalculable benefits for students here in Utah for many years to come.”
Simmons said the assistance authority needed to exit the student loan servicing business because “the world has simply changed on us, the federal government’s involvement, etc. What once worked doesn’t work in the same way it used to.”
At the same time, Simmons noted that the authority’s 44 years of effective service “allowed tens of thousands of students to complete their degrees and to contribute to our economy,” Simmons said.
At an estimated $289 million, the endowment would exceed the dollar amount of the last two major gifts to the University of Utah combined — the “historic” $150 million gift from the Huntsman Family to establish the Huntsman Mental Health Institute, deemed the largest single contribution, and the Eccles families’ recent $110 million gift to the School of Medicine, described by university leaders as “transformational.”
The proposed endowment could be used to provide scholarships and grants to Utah students; high school advising efforts; targeted marketing; initiatives to help students succeed in college and complete their degrees; and other forms of student support.
In 2010, the federal government ended the Federal Family Education Loan Program for state and local partners and replaced it with a direct student loan program administered by the U.S. Department of Education.
Utah’s Higher Education Assistance Authority has been a prime servicer of the federal loan program, but recent federal contracts have been unprofitable and the assistance authority, in October 2020, exited the federal loan servicing business and 146 employees lost their jobs.
The assistance authority’s existing portfolio consists of $1.2 billion of student loan assets with $947 million in liabilities.
“The resulting net position of $289 million represents the equity UHEAA has built over the last 40 years of operation,” the document states.
The assistance authority was created in 1977. Over the past 44 years, it has issued and provided loan guarantees to students in excess of $6.8 billion. It acquired more than $10.2 billion in Federal Family Education Loan Program loans from other vendors.
The authority has also provided more than $263.5 million of loan forgiveness and interest rate reduction benefits. It also provided more than $12 million in grants to 13,100 students to pay for college.
Federal student loan servicers are the intermediary between borrowers and the federal government that lent them money for college. They collect student loan bills and track whether they are paid on time. In recent years, a growing number of private, online companies that service student loans have entered the arena.