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2010 January 11 - 12:00 am

MONEY TREE: Bank of ND Worries About Student Loan Program Future

BISMARCK, N.D. (AP) — The Bank of North Dakota has been in the business of making federally guaranteed student loans since the program began more than 40 years ago. Today, officials at the state-owned bank wonder if that legacy could vanish.

Congress is considering a proposal to put the federal Education Department in charge of all direct college lending, replacing a system that has allowed private lenders to make college loans with federal backing if a student defaults.

Sen. Kent Conrad, D-N.D., said he is confident the federal legislation will include an exemption for the Bank of North Dakota to continue its student loan business, which has represented more than 30 percent of its portfolio. In its most recent annual report, student loans accounted for $776.4 million of the bank’s $2.58 billion in loans.

North Dakota college officials who have been monitoring the legislation’s progress — it is now idling in the Senate after winning House approval last September — are wary.

“It would be a real step the other way in terms of the kind of the financial assistance that we’ve been able to provide,” said William Goetz, chancellor of North Dakota’s university system. “The Bank of North Dakota has done an outstanding job of being able to provide service to students, and we don’t want that to disappear.”

In the last two years, Congress has reduced the subsidies it pays to private banks for making student loans. The cuts have made student lending less profitable and caused a number of banks to drop the business, said Julie Kubisiak, a Bank of North Dakota senior vice president and student loan director.

Bank president Eric Hardmeyer said student loans once made up about one-third of the bank’s profits, which totaled $57 million last year. That share has slipped to about 15 percent.

As other lenders have left the student loan business, the Bank of North Dakota’s lending has increased. It rose 21 percent from 2007 to 2008 alone, the bank’s annual reports say.

The bank is both a money lender and loan servicer, with about 55 employees in its student lending division who keep track of the accounts of almost 150,000 customers.

The Congressional Research Service estimates 14.2 million borrowers will take out federally guaranteed student loans this year. Kubisiak and Hardmeyer believe if student lending shifts exclusively to the federal government, students who need repayment delays or other breaks will get less attentive service. A lending program run exclusively by the federal government could be less flexible, they say.

“Their goal isn’t to help a North Dakota resident,” Kubisiak said. “They might not be as understanding, or be able to take the time to listen to those (hardship) stories.”

Hardmeyer said the job of administering the nation’s college student loans would be challenging for anybody.

“That’s a whole lot of eggs in one basket,” Hardmeyer said. “How are you going to service those students?”

North Dakota college officials credit the bank’s student loan agency with helping to keep default rates below the national average. The most recent average default rate among North Dakota’s 11 public colleges is 4.1 percent, compared to the national average of 6.7 percent, Goetz said.

The federal student loan legislation includes a number of benefits for college students, North Dakota officials concede. It provides more money for federal Pell college grants, interest rate breaks on some existing loans, aid for community colleges and local elementary and high schools, and loan forgiveness for students who have to withdraw from school because of military obligations.

“There are several positive actions included. . . for North Dakota University System students, families and postsecondary institutions,” says a report on the changes that was presented to North Dakota’s Board of Higher Education.

Rep. Earl Pomeroy, D-N.D., said he voted for the legislation in the House with assurances from Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, that the bank’s unique role in student lending would be kept in mind in writing the final legislation.

“We want what’s taking place in North Dakota protected,” Pomeroy said.

Conrad, who is chairman of the Senate Budget Committee, said he had a White House commitment that the Bank of North Dakota would be considered separately in the legislation.

“Many lenders around the country (make) the loans but don’t service them. They turn around then sell them off. And, frankly, that has been a big part of the problem,” Conrad said. “The Bank of North Dakota does not function like that. ... They have not been a contributor to the problems that have existed with other lenders.”

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