Mo. student loan agency axing interest rate breaks

The Missouri Higher Education Loan Authority will quit offering its current interest rate breaks for new borrowers who pay with automatic withdrawals and for students entering public service professions, such as teaching, law enforcement and nursing.

The changes will take effect for loans issued after June 1.

"We're still committed to loan forgiveness programs and borrower benefits. Unfortunately we're not going to be able to do it in the form of reduced interest rates promised for many years to come," Executive Director Raymond Bayer Jr. said Tuesday.

The decision was made at a board meeting Friday, he said.

The cutback in borrower incentives comes as the Chesterfield-based student loan agency--for the first time in its 27-year history--is turning to the federal government for help financing its loans.

Bayer said the agency plans to tap a U.S. Department of Education line of credit for several hundred million dollars to finance loans made during the next school year.

The student loan industry has experienced financial pains in recent months, due partly to a 2007 law that cut its federal subsidies and partly to the credit-market crunch that has made it more difficult for lenders to package and sell loans for a profit.

Missouri's loan authority has added pressure on its resources. Under a 2007 law backed by Gov. Matt Blunt, MOHELA is to transfer $350 million to the state over six years to finance college building projects.

The loan agency sold some of its assets and tapped into excess cash to transfer the initial $230 million to the state in September. But because of financial losses, it delayed a scheduled quarterly payment to the state in March.