Stu­dent lender seeks to adapt to U.S. over­haul

Pri­vate state guar­an­tor’s role cut by di­rect fed­eral bor­row­ing

Austin American-Statesman - - FRONT PAGE - By Nau­reen Khan

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

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