Did Missouri cancel $400B in student loans for fun? Let's find out
Reading audits so you don't have to
I read the most recent audit of the Missouri Higher Education Authority (MOHELA) which the Missouri Attorney General’s Office used to successfully prop up as a reason to cancel President Joe Biden’s original student loan forgiveness plan a while back. The U.S. Administration found another way to cancel $39 billion worth of student loans for 800,000 borrowers a few days ago, but I’m finishing this all the same. The original plan would have canceled $400 billion in debt.
I found a state audit report of legislative findings … from 2007. While it’s definitely outdated, it’s still quite telling. Findings on MOHELA start on page 41 on this document if you’d like to read it yourself. It’s more readable than the 2022 audit.
Outside of fixed assets that can’t be distributed, MOHELA had “a substantial amount of marketable assets, the sale of which can generate significant amounts of cash for operations and other programs.”
In 2007, the MOHELA Act did not specify how it could use surplus funds. During that year’s state legislative session, a law passed that directed MOHELA to distribute $350 million to the state between then and 2013, “primarily for various capital improvement projects at the state’s public colleges and universities.” Then-Gov. Matt Blunt backed this plan, according to an Associated Press story at the time.
Weeks before that law went into effect, two borrowers sued, seeking class action, and claimed this was illegal. A former curator of the University of Missouri was one of their attorneys, John Lichtenegger.
The 2007 audit reported that lawsuit ended a few months later, dismissed by the borrowers. I doubt a settlement was attached to that, because it would have taken longer to win class action status — Still tracking down the case docket, though. The lawsuit claimed that the redistribution of funds was outside the scope and purpose of MOHELA, but I wonder if there was more to the story on why they sued.
The 2007 audit recommended that MOHELA distribute surplus funds in a way “consistent with its mission.” It also noted that MOHELA’s 21 closed board meetings over the last few years likely violated the Sunshine Law and the MOHELA Act, and recommended that it end closed meetings. MOHELA at the time claimed it was compliant with both recommendations, but it’s definitely something I’ll be asking around about.
I’ll share deeper findings on the 2022 audit by EY after interviewing an auditor, but here’s what I’ve got so far.
MOHELA also runs the Missouri Scholarship and Loan Foundation. It’s a not-for-profit corporation that receives grants and gifts, raises funds and accepts transfers and contributions. It uses that money for grant and scholarship programs and finances higher education for students at Missouri institutions and Missouri residents attending college.
The foundation also handles the Missouri Family Education Loan Program (MOFELP). It’s a private, interest-free program intended for Missouri students who don’t meet traditional credit requirements for private loans.
Is this what the Missouri Attorney General’s Office alluded to when it claimed Missouri residents should not have to pay the price for forgiven federal student loans, including those who didn’t seek higher education because it was out of their budget and those who paid off their own loans? I don’t really see the connection to this foundation. Missouri residents with federal student loans would also benefit from their debt being forgiven.
Federal Family Education Loan Program (FFELP) “loan owners do not necessarily earn what a borrower pays,” since FFELP student loan owners get a special allowance. This allows them to “earn a market rate of interest by making up the difference between what a borrower pays in interest (borrower rate) … and what a loan owner earns (lender yield) on the loan under federal law.”
Who are the student loan owners? They are the creditors, third-party lending institutions, that receive monthly student loan payments.
MOHELA is a tax-exempt organization. It’s also authorized to invest in equity securities, hedge funds, managed future funds, commodities, private equity funds, REITs and U.S. bonds. Last year, MOHELA had $302,641 in total cash, investments and mutual funds.
It had $181,837 in total assets, including its foundation.
EY stated that it performed compliance tests but did not publish an opinion of those tests because it was not an objective of its audit. So I guess I’m going to FOIA a billion-dollar company. I dread the bill for that, but hopefully I can waive it. What could it be, a couple emails? An internal report?
This is just the start of what I can dig up about MOHELA financials and why exactly the money was so important to the Missouri Attorney General’s Office. Definitely a rough cut. The first time I read the 2022 report, I could not understand any of it. Thankfully I enjoyed my data reporting class back in college against all odds.
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