Utah to the U.S. Education Department: Keep your hands off our piggy bank.
For years, the Utah Higher Education Assistance Authority - the state agency that guarantees payment of student loans - has been accumulating reserves. Now the federal government is attempting to recover "excess cash reserves" as a way to cut the federal budget deficit.Last December, Congress passed federal legislation requiring the secretary of education to recover from the states $75 million in federal advances in 1988, $35 million in federal advances in 1989 and $250 million in "excess reserves."
The Utah Higher Education Assistance Authority returned $823,545, part of the amount that the federal government advanced the state to start up its student loan programs, earlier this year and is willing to give back another $465,000 in federal advances in next year's payment.
But the state agency disputes the feds' claim on an additional $800,000-plus that the Education Department declared "excess reserves." Utah intends to refuse payment of this amount all the way to court, if necessary.
"Clearly, this is a grab for our money. These are reserves that were established and built by Utah. It would be like the feds coming to your bank account, saying you had too much money and taking it," said David A. Feitz, assistant commissioner of higher education for financial assistance.
The reserves, which have accumulated through a premium paid with each student loan and the interest, were built up along federal guidelines, and it's on their strength that lenders are interested in student loans, Feitz said.
On March 11, C. Gail Norris, executive director of the state agency, told the Education Department that Utah would resist any attempt to reduce the reserves beyond the federal advances.
"It is our opinion that the monies in UHEAA's reserve account after return of the federal advances are state funds which cannot lawfully be taken by the secretary. Furthermore, lenders agreed to participate in UHEAA's guarantee programs on the basis of existing reserve levels. An unlawful reduction of these funds would substantially impair UHEAA's ability to perform its mandated functions, and would be a possible violation of state law," Norris wrote.
For more than a month, there was no response. Then Dewey L. Newman, deputy assistant secretary for student financial assistance, informed the state agency that it could make an oral presentation to present additional information on its position.
Utah did not elect to make an oral argument because there was no point in it, Feitz said. "We have already made our position clear."
Utah is not alone in its resistance. Only two states with small "excess reserves" - Kentucky and Nevada - have compiled with the order. Others, like Utah, have said, "No!" Iowa, Ohio, Wisconsin and Delaware have filed suit, challenging the federal government's right to demand what they believe is state money. Utah is ready to do that, if it is necessary.
The state is now waiting for Washington to make the next move.