SALT LAKE CITY — Effective immediately, the Utah Higher Education Assistance Authority has terminated its contract with the U.S. Department of Education to process student loans, which will result in 146 employees losing their jobs.
The authority, which is a subsidiary of the Utah System of Higher Education, has served 1 million student loan customers nationwide over the past nine years under its contract with the Education Department's Office of Federal Student Aid.
However, "the terms of the contract led to financial losses for the organization, and UHEAA leaders reached the decision to terminate the contract," a press release from the Utah System of Higher Education states.
David S. Schwanke, interim executive director of the authority, said in a statement: "After careful consideration, the decision to terminate the federal student loan servicing contract was made in the best interest of the state of Utah and our organization and its long-term financial sustainability."
The affected employees are call center representatives and loan processors.
"We regret that the decision to end the contract with the U.S. Department of Education's office of Federal Student Aid negatively impacts so many of our highly valued employees, and we're committed to helping them through this transition over the coming months," Schwanke said.
The authority and the Office of Federal Student Aid will begin transferring accounts to another federal student loan servicer "with as minimal disruption as possible over the next several months," the press release states.
The Utah Higher Education Assistance Authority is a state government agency established in 1977. Its authority is delegated by the Utah Board of Higher Education and it is governed by an 11-member board of directors and Utah's commissioner of higher education.
The authority administers Utah's student financial aid programs, including the student loan guarantee program and secondary market and state need-based financial aid.
A press release issued in August announcing the retirement of the organization's longtime executive director Dave Feitz noted that over his 14-year helm, the authority oversaw a $21 billion student loan portfolio and administered its $1.1 billion student loan bonding program, which has achieved top financial ratings and cut the cost of going to college for students.
Schwanke, in an interview, said the costs of servicing the loans had exceeded the funding the U.S. Department of Education was providing. Other portfolios the authority handles have produced sufficient revenues to cover the costs.
"We are a profitable organization. This is just a financial decision to end an unprofitable segment," he said.
David Woolstenhulme, Utah's commissioner of higher education, said officials had hoped that the Education Department's restructuring of the agreement would come with new pricing "but it was worse than it was before so it just made it a really easy decision for the board ... to make a decision to exit the contract."
In recent years, the cost of servicing the loans was about $2 million higher than the contract with the federal government was funding, officials said.
In June, the U.S. Department of Education issued a press release announcing it had signed servicing contracts with five companies to take over much of its federal student loan portfolio. Earlier this year, the Education Department had earlier announced plans to overhaul its federal student loan servicing system.
The companies include:
- EdFinancial Services.
- F.H. Cann & Associates LLC.
- MAXIMUS Federal Services Inc.
- Missouri Higher Education Loan Authority (MOHELA).
- Texas Guaranteed Student Loan Corporation (Trellis Company).
According to Forbes, the changes are part of the Department of Education's shift to a single, centralized servicing platform.
Schwanke said the larger restructuring was a separate action and had no bearing on the student loans that the Utah Higher Education Assistance Authority was servicing under the now-terminated contract.