MOHELA's architect doubts plan
Allan Purdy, 92, is the architect of MOHELA. Photo by L.G. Patterson
By Matthew Franck
St. Louis Post Dispatch
Years before Allan Purdy had a hand in transforming student financial aid nationwide, he was a farm boy struggling to get through University of Missouri during the Great Depression.
All he had going for him was a 25-cent-an-hour job and an idea that just might help him and his buddies keep their bellies full enough to focus on books.
In an age before campus dorms and buffet lines, Purdy organized a kind of co-op of hot meals, giving students access to a private cafeteria for 20 cents a plate. To stay on budget, Purdy bought potatoes by the bushel and whole cattle, instead of meat from a butcher.
"We ate rather well, " recalls Purdy, of the 100 students who joined the enterprise.
Purdy, 91, has dedicated most of the past 72 years attempting to make it easier for students to afford college, amassing an impressive resume along the way.
So when he criticizes the recent plan to sell assets from the Missouri Higher Education Loan Authority, or MOHELA, he speaks from experience.
In 1958, he set up the University of Missouri student aid office at a time when most schools had never heard of such a thing. He later organized financial aid officers nationwide, forming a group that has helped shape federal student loan policy. He also was appointed by the president as a founding board member of Sallie Mae, which has become an $85 billion student-lending giant.
Beyond that, Purdy is a founder and chief architect of MOHELA.
Today, Purdy fears that MOHELA's nonprofit mission of increasing access to higher education could be threatened by a plan that would extract $450 million from the agency over the next four years.
Gov. Matt Blunt hopes to use the money to fund higher education construction, scholarships and economic development. He says MOHELA can afford the divestiture while continuing to offer breaks on interest to thousands of Missouri students.
But Purdy isn't so sure.
"I think there's a possibility that MOHELA can't be as generous as they have been, " he said.
Purdy is as concerned about the plan as he is about the process that produced it. In particular, he doesn't like that the MOHELA board was pressured to agree to sell its assets to survive.
The asset sale was offered as a compromise to the governor, who had initially proposed selling MOHELA entirely. But Purdy said he worries that in the rush to provide $450 million to the state, MOHELA may be overextending itself.
"I think that MOHELA from death row has promised a flow of money that is quite difficult to provide, " he said.
Origins of MOHELA
Purdy traces the creation of MOHELA to an unexpected phone call he received from Gov. Christopher "Kit" Bond in 1981.
At the time, Bond had heard complaints statewide that students were unable to get student loans from their local banks.
That kind of problem was supposed to have been addressed when the federal government created Sallie Mae a decade prior.
The role of the federally funded entity was to buy student loans from the banks who issued them. Banks liked the arrangement because many didn't want to hold the loans for the long term or carry the bureaucratic burden of meeting the federal guidelines of servicing them.
Purdy said that partnership was working but only with the larger banks. He said Sallie Mae had less interest in partnering with small-town lenders.
That left many Missouri students, particularly those in rural areas, out in the cold. The solution, crafted over months by Purdy, Bond and the Legislature, was to create a state entity similar to Sallie Mae. The concept followed the lead of other states that were forming so-called secondary lending markets.
From the start, MOHELA was to be an independent entity from the state. It has never received a penny in state appropriations. Law states that it is not expected to give money back to the state.
In fact, Purdy said, the whole operation would have never gotten off the ground if two board members hadn't backed it with $25,000 private loans. The money was needed to rent an office, set up phones and hire a director.
But while MOHELA was chartered as a nonprofit, it retains significant ties to state government. All but one member of its board is appointed directly by the governor. But more significantly, MOHELA has the authority to issue tax-exempt government bonds.
That funding source has been essential in starting a cycle. The more bonds MOHELA issues, the more loans it buys from banks, which, in turn, prompts banks to issue more student loans.
It's also a cycle that has allowed MOHELA to grow steadily, with virtually no attention from the public or even the Legislature that created it. Today, it holds $5.1 billion in loan assets and ranks as the second-largest state loan authority of its kind.
Breaks for students
In justifying the sale of MOHELA assets, the governor has often pointed out that the student loan market of today is far different than the one that existed whenMOHELA was formed.
Today's market, many say, is more competitive, with large and small student lending institutions willing to partner even with small banks. That kind of robust competition keeps interest rates low and service high, they say. As a result, many say, MOHELA borrowers won't see an increase in interest even if their loans are sold to a for-profit entity.
Purdy doesn't argue that times have changed. Even without MOHELA, he said, for-profit entities would make sure that banks kept the loans flowing to students.
But Purdy says there's more to the equation.
As MOHELA has grown in wealth, he said, it has been able to do far more than merely serve as a catalyst to lenders. Increasingly, it has use its financial muscle to fulfill its nonprofit mission by giving borrowers breaks on interest and, in some cases, complete forgiveness of debt.
Those breaks far exceed those offered by for-profit entities, with substantial interest rate reductions to those who enter certain professions, such as law enforcement, social work or teaching. Last year, it also forgave nearly $8 million in loans, much of it helping college freshmen reduce debt as a means to keep from dropping out.
Some have questioned whether MOHELA is as generous as it could be, given its asset wealth.
James Gilbert, Missouri Southern State University's director of student financial aid, wonders why a state agency that was set up as a nonprofit is sitting on so much money to make it so attractive to sell.
"That's making profit off of the students, " he said.
But Brett Lief, president of the National Council of Higher Education Loan Programs, said Missouri's system offers the best package to borrowers of any secondary market in the nation.
MOHELA officials say they will continue to offer such benefits, even after selling large portions of assets to fund the governor's projects.
"I don't think we're off course at all, " said Will Schafner, MOHELA associate director of business development.
The plan calls for MOHELA to sell $2.4 billion of its $5.1 billion loan portfolio initially, then sell roughly $3 billion in future loans over the next 3 1/2 years.
Raymond Bayer Jr., MOHELA's acting director, says a booming loan market will allow MOHELA to rebuild assets within three to five years after the assets have been sold.
But in the meantime, Purdy says, the sell-off would limit MOHELA's capacity for offering benefits to borrowers.
He equates the sale to a farmer who sells off half his milk cows for money needed right away but then must brace for lower monthly returns selling milk.
Public can weigh in
Blunt has repeatedly said he sees no drawbacks to the asset sale. He says the $450 million would spark a boom in economic development, while providing $5 million a year in scholarships.
Karen Luebbert, president of the MOHELA board, says Blunt's spending plan is compatible with MOHELA's mission. Having said that, she said recently in a hearing that MOHELA would have never agreed to liquidate its assets for the project if Blunt hadn't first announced a plan to sell the agency.
Purdy said it's wrong for a state that has never invested in MOHELA to use money from student loans on anything other than direct financial aid.
"I think there's an ethical question of the state putting that kind of pressure on an agency in which it has not placed one copper penny, " he said.
Others join Purdy in questioning the speed with which the deal was crafted. Attorney General Jay Nixon sued to place the plan on hold, arguing that it was hatched after numerous violations of open meetings laws. Last week, the MOHELA board agreed it will hear public testimony on the issue for the first time at a hearing at the Lake of the Ozarks scheduled for Friday. The board is then likely to vote on the plan again.
Purdy said he hopes to testify at the hearing. So far, he has been on the sidelines of the debate. He said he hasn't spoken to the governor's office or MOHELAofficers about the plan.
He did stop by the MOHELA headquarters in Chesterfield recently. But at the time, officials were frantically busy putting together the loan sale.
Besides, he said, the golf course was calling that day.
Purdy doesn't play the sport. But for nearly 40 years, he has worked the country clubs pushing a scholarship fund for young caddies.
He interviewed six candidates that day. Each has since been awarded a full-ride to MU.
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