Mo. student loan agency axing interest rate breaks

Noting the general financial troubles in the student loan industry, Bayer said there is no connection between the college building payments and MOHELA's decision to curtail its interest rate breaks.

"This already has happened industrywide; borrower benefits virtually don't exist," Bayer said. "We had held out as long as we could."

But leading Democrats suggested MOHELA's cutbacks resulted from the Republican governor's building initiative.

Democratic gubernatorial candidate Jay Nixon, the current attorney general, described the MOHELA decision as a "crushing blow" to students already paying higher tuition.

"When Gov. Blunt raided MOHELA's assets, the one thing he assured us was that it would cause no harm to Missouri students," Nixon said in a written statement. "It was obvious--at least to those of us who fought the MOHELA raid from the beginning--that Missouri students would end up paying the price. And now they are."

House Minority Leader Paul LeVota, of Independence, and Democratic treasurer candidate Rep. Clint Zweifel, of Florissant, also claimed Blunt's college construction plan had weakened MOHELA and contributed to its decision to end its student interest rate breaks.

Zweifel pointed to a February 2007 memo by Liscarnan Solutions LLC warning that potential changes in federal student loan policies could invalidate its previous conclusion that the building payments would not jeopardize MOHELA's financial health or its benefits to students.

"The contention that when you suck $350 million of assets out of an organization that it has no effect on their ability to work through a pretty tough and difficult time in the credit market is just silly," Zweifel said.

Blunt spokeswoman Jessica Robinson said the Democratic criticism was simply wrong.

"Jay Nixon has always been opposed to every project funded by the Lewis and Clark Discovery Initiative, and Jay Nixon has never understood how MOHELA operates," she said. "Now he seems to be entirely unaware of a global problem that affects every entity that used auction-rate securities."