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State to sell student loan portfolio

Lawmakers this session have been scrounging for every nickel, but now it looks like they may have $35 million on their hands that they hadn’t counted on.

Rico Munn, director of the Department of Higher Education, told the Joint Budget Committee Thursday that the board of CollegeInvest has decided to sell the agency’s $1.5 billion portfolio of student loans, a move that will net about $35 million to the state.

CollegeInvest’s other operations, including its $3 billion 529 college savings program, and those of its sister agencies CollegeInColorado and CollegeAssist won’t be affected, Munn said.

While CollegeInvest, a semi-autonomous agency within DHE, has the right to dispose of asserts. But the legislature gets to decide what to do with the $35 million, which won’t be available until September at the earliest.

JBC member Sen. Abel Tapia, D-Pueblo, said he fears a lawmaker “food fight” over the money. “We have a month to go and could do a lot of damage,” he joked.

While $35 million isn’t much in the big picture of the state budget, it could offer lawmakers an option for some higher education funding problems.

Rep. Karen Middleton, D-Aurora
Rep. Karen Middleton, D-Aurora

Rep. Karen Middleton, D-Aurora, sat in on the meeting and said afterward she’s preparing a bill that would keep the money in higher education, perhaps to shore up need-based student aid or to minimize a proposed transfer out of a CollegeInvest scholarship fund.

A pending measure, House Bill 10-1383, proposes to take $45 million out of the scholarship fund and use about $29 million to bolster the state general fund and another $15 million to help pay for other need-based scholarships. (Lawmakers have been quibbling over exactly how this transfer might work.)

It’s likely other lawmakers will have other ideas about how to use the money.

Why is the state getting out of the loan business?

A new federal law is centralizing all federally guaranteed student loans in the U.S. Department of Education, meaning state agencies like CollegeInvest (and private lenders) won’t be able to make new guaranteed loans.

While CollegeInvest theoretically could make more money if it serviced the loans until they were paid off, Munn told the JBC that would be risky. “The business ultimately is in a wind-down mode, and this is an aging portfolio. … The reason for this sale is to monetize the value of this loans.”

The buyer is a company named Nelnet, and Munn said the contract could be signed within a week. He said there were only two bidders and that Nelnet’s offer was the highest.

Deb DeMuth, head of CollegeInvest, said Nelnet is a large company and can finance loans more economically than her agency. Both she and Munn stressed the mechanics of the deal mean the money won’t be available for several months.

Munn noted that the sale won’t change loan terms or payments for students.

CollegeAssist guarantees student loans, and CollegeInColorado provides college planning services.

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