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As banks continue to drop out of Utah's guaranteed student loan market, the amount of money borrowed has soared, spiking 33 percent so far this year to $476 million and testing the state's ability to fund every eligible student.
"The number of loans is up 28 percent to 115,00 loans year to date," David Fietz, executive director for the Utah Higher Education Assistance Authority (UHEAA), told the agency's board Thursday.
"These are historic increases," he said, attributing the spike to increasing enrollment and the recession, which has meant parents can't contribute as much to their children's education costs.
Still, Fietz assured board members that the state will be able to serve every qualified college student seeking assistance under the Federal Family Education Loan program without delays. The $100 billion FFEL program funds popular Stafford and PLUS loans.
Earlier this month, U.S. Bank, which last year covered 28 percent of the Utah student loan market, bowed out of FFEL lending, joining Zions and Wells Fargo banks, which bailed last year. Banks find yields of 3 percent -- set by Congress -- too low to make participation worthwhile, according to Fietz. Credit unions have taken up some of the slack. UHEAA, an arm of the Board of Regents, began originating loans last summer.
The agency next year expects to fund up to half the state's need, at least $200 million, Fietz said. To meet that need, he is negotiating with UBS Bank to
Utah's three high-growth schools -- Utah Valley University, Salt Lake Community College and Dixie State College -- drove much of the ballooning interest in federal loans. Dixie's 63 percent growth in loan volume reflects the St. George school's expanding four-year focus, according to Frank Lojko, student services vice president. Loan limits, which increased last year, are substantially higher for upperclassmen than for freshmen.
"People are staying in school longer and we're having continued growth in students coming here," Lojko said.
In the meantime, UHEAA "reluctantly" plans to sell, or "put," loans originated this year and next year to the U.S. Department of Education under the feds' emergency liquidity program, launched to address the credit crisis threatening to choke off educational financing. This move will save state taxpayers $30 million.
Hanging onto the loans would allow UHEAA to service them, which confers many benefits on students and their institutions, state officials said. With UHEAA, students get a break on fees and interest rates, and receive a more personal level of customer service.
UHEAA hopes to convince federal education officials to allow the state agency to continue servicing the loans. This would put the state in a good position to continue this role once the federal government nationalizes the student loan system. The Obama Administration has proposed this reform, which is expected to win congressional approval this summer over the objections of Utah's delegation.
State officials believe UHEAA can best service loans to Utah students and hope to continue doing that. The agency has a solid 32-year track record of taking care of $2 billion in loans currently on its books, officials say, pointing to the state's paltry 2.1 percent default rate in contrast with the 6.9 percent national rate.
"It's a negotiating game to see if they'll give the servicing back to us," UHEAA board chairman David Jordan said.
