Voters will decide Tuesday whether to increase the money the Texas Higher Education Coordinating Board can lend to college students.
Proposition 2 on the ballot for Tuesday’s election would amend the Texas Constitution to reauthorize and increase the cap on the bonds the THECB can issue for academic loans to $500 million from $400 million.
Proponents of the amendment say it will, at no cost to tax payers, provide more low-interest financial aid to Texas students overburdened with rising tuition and fees.
"We have to help people go to school," said Dominic Chavez, director of State Relations. "It’s a great, great benefit to Texas and Texas students."
For the 2007-2008 school year, UH’√Ñ√¥s tuition and fees rose by 6.9 percent. Across the state, tuition and fees at public four-year universities rose by an average of 7.6 percent, the Houston Chronicle reported in October.
Sal Loria, UH interim financial aid director, said the increased loans would help students pay for college, but using loans, in general, to pay for school might not be the best choice.
"I’m not sure everyone should take advantage of those sorts of things because it’s not the best way to fund their education," he said. "My goal here is to try and reduce a student’√Ñ√¥s overall indebtedness as much as possible."
Loria said the Office of Scholarships and Financial Aid works to help students explore options such as scholarships and grants before turning to loans.
He also said the private loan market meets student demand.
"We already have access to unlimited private loans," he said. "There’s more access to private loans beyond what the state is offering."
Students at public four-year universities in the United States incur an average of $17,277 in educational loans over their academic careers, according to FinAid, a Web site specializing in financial aid information and advice.
The THECB loans issued for the 2007-2008 school year averaged about $9,300 per loan with a fixed interest rate of 6 percent.
Over the past 10 years, the THECB distributed $117 million in loans to about 9,600 students with residences in Harris County.
"If you go to any private lender, I would challenge anyone to find a lower interest rate than what we’√Ñ√¥re able to offer because we’re a non-profit agency,"Chavez said.
Citibank, Chase and Astrive offer student loans with annual percentage rates, which include interest and fees, of 7.52 percent, 9.02 percent and 9.64 percent respectively, according to their Web sites.
Opponents say the amendment will increase risk for the state, which would be responsible for the debt to investors if revenue from loan payments ever fell short.
However, Chavez said, the program is self-sustaining, runs on a conservative business plan and has never failed to meet obligations to investors in its 40 years of operation.
"It would probably take an economic downturn of a proportion we haven’t seen in recent history, the past several decades, for us to come anywhere close (to a problem)," he said. "We don’t expect there to be a problem."
The general bonds that fund the loans are sold to investors and repaid by students with interest, Chavez said, and the program uses no tax funds.
The board requested the increase cap on bond sales because demand for the loans has increased as more Texas students go to colleges with higher tuition rates.
The THECB has estimated that based on its dispersal pattern, the current $400 million bond limit will be exhausted by spring 2009.
The bond program supports the Hinson-Hazelwood Student Loan Program, an umbrella name for several loans, including the College Access Loan Program.
"The program won’t necessarily flat-out end in 2009, but we fully project that it will be severely curtailed," Chavez said. "It’s not out and out Armageddon if it doesn’t pass on Tuesday, but it puts us on the path."
As bonds continue to be paid off, Chavez said, the board would still be able to sell bonds and award loans, but at a much lower rate. Instead of the current sale of about $85 million in bonds per year, he said, the program would sell about $10 million if the bond increase goes unpassed.
In Texas, bond programs similar to the THECB’√Ñ√¥s generally face little conflict, said Laura Calfee, UH System assistant vice chancellor for Government Relations.
"The Legislature passes these sorts of bond proposals every few years with little or no opposition," she said.
An increase to the THECB’s general bond cap was last passed in 1999, the organization reported.
The Hinson-Hazelwood program was founded in 1965 and was one of the first student loan providers in the country, even before private lenders got into the business, Chavez said. The THECB has requested, and received, reauthorizations and increases to the bond limit six times since the program’s inception.
To qualify for a Hinson-Hazelwood loan, students must be Texas residents attending an accredited university or college in the state at least half time. The loans are not limited to students attending public institutions.
Borrowers are given a six-month grace period after graduation before they must begin repayments on their loans, Chavez said. The loans are never sold to another lender.
