Student lender seeks to adapt to U.S. overhaul
Private state guarantor’s role cut by direct federal borrowing
Since its creation, the Texas Guaranteed Student Loan Corp. has guaranteed $41.6 billion in loans for millions of Texas students.
But the massive overhaul of the student loan industry in March cut private lenders out of the student loan equation altogether in favor of direct borrowing from the federal government.
Now, Texas Guaranteed — which reported $52 million in revenue in 2009 — faces a vastly transformed landscape for doing business.
Gone is its “guaranteed” function, and with it a sizeable chunk of the revenue the corporation brought in from originating loans — $32.5
Continued from A1 million, or 27 percent of its revenue in the 2009 fiscal year, said George Torres, a senior adviser with Texas Guaranteed.
The Round Rock-based public nonprofit was created by the state Legislature in 1979 to administer the bank-based federal student loan program. It guaranteed loans for half a million student borrowers in 2009 and has served more than 3 million since its inception.
In those days, business for Texas Guaranteed hinged largely on its partnership with the federal government and private lenders: Banks and credit unions put up the money for the loans, and Texas Guaranteed processed the loans, paying the loans back if student borrowers defaulted.
In return, it skimmed a fee off each new loan it guaranteed. The federal government reinsured Texas Guaranteed for defaulted loans at a rate of 95 percent.
As a public nonprofit, Texas Guaranteed receives no state appropriations, and its income now comes solely from fees associated with maintaining and preventing default on its existing accounts. It also takes in a percentage of collections.
In response to the overhaul, Texas Guaranteed has eliminated 65 jobs — about 10 percent of its work force.
But Texas Guaranteed officials insist the corporation is far from defunct.
It continues to manage a $30 billion loan portfolio it has built up over the past 30 years. And more importantly, officials said, the educational and support function of the agency, especially loan delinquency and default prevention, is more crucial than ever. With 18,756 borrowers failing to repay their loans in 2007, the student loan default rate in Texas is the second highest in the nation.
“The program has changed but the support services that we provide are still needed. The schools still want them,” Torres said. “We want to continue to provide those services under the direct loan program as well.”
Reinventing its business model and finding ways to turn those support services into new sources of revenue, however, is a work in progress. that debt, and they have to increase their financial literacy — that’s what so important about TG.”
Sen. Judith Zaffirini