Student loan revenue bonds totaling $170 million will be issued to refinance loans to Utah college and university students.
Authorized by the State Board of Regents, the series of bonds mature between 1992 and 2017 and have interest rates from 6.85 to 7 percent.G. Gail Norris, state associate commissioner for higher education, said Wednesday that $140 million of the tax-exempt bonds will be used to pay the Student Loan Marketing Association, a private corporation that was chartered by the federal government. In the past four years, the regents have borrowed $140 million to buy student loans from local lending institutions.
A student borrower actually receives the loan from a local lending institution. However, after a while, the lender may decide it wants use of the money tied up by the student loans, so the lender sells the loans to regents.
Since February 1984, the SLMA has supplied the funds used by the regents to purchase the student loans. However, because the regents' line of credit expires next February, the regents, through their Loan Finance Subcommittee, have been shopping for the needed financing.
Although the subcommittee negotiated extensively with SLMA, better terms were available with the bonds, Norris said. In June, the regents selected, based on competitive bids, the firms of Manufacturers Hanover Trust Co., A.G. Edwards & Sons Inc. and First Security Bank of Utah as underwriters.
Of the remaining $30 million from the $170 million, $5 million will go to pay the underwriters' commissions, other financing costs and debt service reserves, while $23 million will be new money which can be used to buy other student loans from the lending institutions.
Norris said this is the first time in several years that the state has issued student revenue bonds. In 1983, Utah was ready to issue student revenue bonds, but the federal government rejected the plan and forced the state to go with the SLMA. Since that time, the law has changed, allowing Utah to enter the bond market with student revenue bonds, Norris said.
Of the new bonds, no money has changed hands yet. By federal law, a public hearing must be held for the issuance of all student revenue and industrial bonds. The hearing is scheduled at 8 a.m. Friday at the Utah System of Higher Education Offices, 355 W. North Temple.