11/13/95 Great Lakes Higher Education Corporation Designated as Student Loan Guarantor for Ohio
U.S. Secretary of Education Richard W. Riley today announced that he has identified Great Lakes Higher Education Corporation (Great Lakes) as the new guaranty agency to serve the state of Ohio upon the completion of the orderly termination of the Ohio Student Aid Commission’s participation in the Federal Family Education Loan Program (FFELP).
On October 20, the Board of Commissioners of the Ohio Student Aid Commission informed the Education Department of its intention to pursue termination of its participation in the FFELP as the designated guaranty agency for Ohio. The Commission, Great Lakes and the U.S. Department of Education will begin work on a comprehensive plan providing for an orderly transition of operations.
Great Lakes is a private, non-profit corporation designated by the department to administer the FFELP in Wisconsin, Puerto Rico and the Virgin Islands. In addition, it currently guarantees about 40 percent of the student loan volume in Ohio.
On September 12, Riley announced his approval of the voluntary merger of Great Lakes and Northstar Guarantee Inc., (the guaranty agency that serves Minnesota) and their plan to implement two new concepts that would initiate unprecedented changes in the way they do business.
As part of the new operation, the merged agency will restructure its default reduction activities to eliminate the current arrangement, whereby a guaranty agency can make more money by letting loans default than by preventing the defaults.
Under the new arrangement, the guaranty agency may be compensated based upon the dollar amount of defaults averted instead of upon the amount of collections received on defaulted loans. The department will assume responsibility to collect on the defaulted loans.
Additionally, under these plans the department and the two guaranty agencies are developing plans for the merged agency to return to the department the portion of its current $78 million in federal reserves that is unnecessary for working capital purposes. The education department will also recoup $35 million of the current Ohio agency’s $45 million federal reserve; the remainder will be sent to Great Lakes along with the outstanding loan guarantees. In addition, to begin the restructuring of the new agency’s default reduction procedures, all of the defaulted loans held by the commission will be assigned to the Education Department for collection.
“In the few weeks since my earlier announcement, Great Lakes and Northstar have made substantial progress towards implementing their merger,” Riley said. “I am quite pleased to be able to add Ohio to this innovative combination.
“For the foreseeable future, the administration remains committed to both the Direct Student Loan program and the Federal Family Education Loan Program. Therefore, it is our responsibility to ensure that guaranty agencies be administered as efficiently and cost-effectively as possible. The clear beneficiaries of the improved efficiency and reduced cost in the Great Lakes/Northstar merger, now to include Ohio as well, will be the students, schools and the American taxpayer.”
It is anticipated that the merger will be completed early in 1996.