Torres said fiscal responsibility over the years has allowed Texas Guaranteed to stay afloat and said that discipline with serve the corporation well as the student loan industry goes through historic changes. “We’ve handled our funds conservatively,” Torres said. “We don’t have to worry right now about whether we’re going to make up those funds.”
Despite running a $56 million deficit in 2008 as a result of the loss of a federal program — axed as a cost-cutting measure by the Department of Education in 2007 — Texas Guaranteed had $447 million in its reserves at the end of fiscal year 2009, according to its most recent annual report.
The agency employs 627 workers and anticipates that it may hire more employees who are suited to its new educational and support focus.
“We don’t know yet how it’s all going to work,” Torres said. “But as far as colleges and universities are concerned, the origination function is not that important. They are concerned with delinquency and default.”
In Texas, student loans account for 67 percent of all student aid, compared with 55 percent nationally. The high proportion of student loans taken out in the state might contribute to the high default rate — 9.3 percent in 2007, according to the most recent reports by the U.S. Department of Education. The national default rate was 6.7 percent.
Thomas Melecki director of financial aid at the University of Texas, said he thinks the state rate would be even higher without Texas Guaranteed tracking down delinquent student borrowers and working out repayment options, as it did under the private-lender program.
“TG’s right there on the spot. They are an absolutely fabulous service and crucial in a state where so many rely on borrowing,” said Melecki, who worked for Texas Guaranteed from 1982 to 1990. “Their financial literacy program is going to be a really, really important program for this state, because you have a lot of low-and middle-income families trying to figure ways to send their sons and daughters to college. It’s a huge piece of that.”
Torres said Texas Guaranteed brings something unique to the student loan market: It is local and has long-standing relationships with Texas colleges and universities. As such, it can provide the kind of specialized attention to Texas borrowers and institutions that the Department of Education can’t.
It’s also possible that Texas Guaranteed could market its services in other states, Torres said, depending on the need and how other guarantee agencies function in the new loan environment.
But Texas Guaranteed’s primary concern is how to continue to provide support to colleges and universities under the Federal Direct Loan Program, Torres said. “What’s paramount on our mind is that this direct loan program works and borrowers get their money just as effectively.”