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HELENA - The Schweitzer administration remains unsatisfied with the oversight of two Montana student loan agencies and supports a bill to open their meetings and require legislative audits, budget director David Ewer said Friday.

Ewer expressed his concerns at a meeting of the Legislative Finance Committee, which was examining student loan availability and the impact of bond market problems.

A report by fiscal analyst Alan Peura looked at what's happening with two private, nonprofit groups - the Montana Higher Education Student Assistance Corp., which finances student loans, and Student Loan Foundation, which services loans for Montanans and nationally.

Some members of the state Board of Regents and the higher education commissioner and her staff sit on the two boards, along with some outside members.

MHESAC has been caught up in the national credit and liquidity crunch. Auctions for nearly all of the $1.3 billion of auction bond notes previously issued by MHESAC to finance student loans have failed several times since Feb. 11. As a result, its operating costs have gone up by $14 million and it experienced its first-ever net loss. MHESAC is hoping to restructure its financing and is waiting to see what a recently passed federal law will do.

Although MHESAC has $175 million in financing in place for loans to Montana students in the 2008-09 school year, the availability of money in future years is uncertain. Student loan officials said they are confident money will be available.

Meanwhile, SAF laid off 23 employees in April to go along with the 35 jobs not filled through attrition since last fall and ended its student loan consolidation program.

Ewer contended that both the executive and legislative branches need to be more involved overseeing the student loan agencies because of the potential financial or reputational risk the state could face.

"It raises concern when you're the risk manager," Ewer said, adding: "You certainly don't have sufficient buy-in from the Schweitzer administration because we don't know what you're doing. The same with legislators."

After the meeting, Ewer told reporters: "I'm hoping that their problems don't crown over to state government. Look at their flow chart. They're completely and integrally enmeshed with state government."

However, Jim Stipcich, SAF president and chief executive officer, said the bond offering documents make it clear that "our bonds are not state bonds." So state government bears no financial risk from the actions of MHESAC and SAF, he suggested.

"It's interesting to note at the time we are having the most difficult time we have had in 25 years, the state (government) has had its bond ratings upgraded," Stipcich said.

Ewer said later in the meeting he agrees the state isn't morally or financially obligated for any financial problems faced by MHESAC and SAF.

"That doesn't mean the conclusion ought to be that this party can do whatever it wants," he said. "I don't believe more oversight means more obligation for the state of Montana."

Stipcich said the two agencies' board meetings have always been open and they are subject to 13-14 various financial, compliance and performance audits a year already.

Under questioning by Sen. Carol Williams, Stipcich said the two student loan groups opposed a 2007 bill by Rep. John Musgrove, D-Havre, that would have required open meetings and a legislative audit because it would have subjected their contractors to the state open-meetings law. The bill ultimately failed, but Rep. Dan Villa, D-Anaconda, has said he will introduce a similar measure this year.

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Williams asked if MHESAC and SAF staff would work to help draft acceptable legislation. Stipcich said the boards of the two agencies hadn't discussed the matter, but "I think they would be willing to talk."

Democratic legislators and Sen. John Cobb, R-Augusta, sharply questioned Stipcich and other student loan officials.

Sen. Dave Wanzenried, D-Missoula, said he was struck by the "unbridled optimism" in MHESAC and SAF's 10-year development plans in 2004 when SAF anticipated a student loan portfolio of $5 billion.

"You're using hope as your business model," Cobb told Stipcich. "It looks like you're flying by the seat of your pants."

Stipcich said the interest rates MHESAC has to pay auction bondholders who couldn't find other buyers have dropped considerably since late March.

"What happens if you go under?" Cobb asked.

Stipcich said the bonds are pledged to a trust, and the loans would be owned by bondholders. Students would pay back their loans to the trust.

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