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Amy Dalrymple, Forum News Service, Published March 14 2010

Conrad: Bill would hurt Bank of North Dakota

Sen. Kent Conrad is trying to protect the Bank of North Dakota from a student loan reform bill he calls a “one-size-fits-all approach.”

Conrad, a key player as the Senate debates the Student Aid and Fiscal Responsibility Act, said in a statement that the version of the bill approved by the House would jeopardize the Bank of North Dakota.

“It takes a ‘one-size-fits-all’ approach to student lending in an attempt to crack down on some financial institutions that engage in dishonest practices,” said Conrad, D-N.D.

The senator said he strongly supports student loan reform, but the approach should not apply to “fiscally sound institutions like the Bank of North Dakota, the only state-owned bank in the country.”

The proposal backed by President Barack Obama would end the bank-based federal loans and switch schools to the Direct Loan Program.

The savings from the new program would be reinvested in student aid, including a major increase for Pell Grant funding and assistance for community colleges.

Recent estimates put the savings at $67 million over 10 years, rather than the $87 million that was estimated earlier.

Eric Hardmeyer, president of the Bank of North Dakota, said he’s been discussing with Conrad some language for the bill that may allow the bank to continue distributing federal loans.

Hardmeyer said banks are incorrectly viewed as making “piles of money” on the federal student loan program.

A typical student loan recipient pays 6.8 percent interest, while the Bank of North Dakota is yielding 1.5 percent on that loan, Hardmeyer said. The difference goes to the federal government.

“I grow a little tired of listening to the politicians talk about the greedy bankers on this,” he said.

If the federal legislation is approved, students will lose customized personal service, Hardmeyer said.

North Dakota families also would lose the outreach that the state-owned bank does with high school students on student loan education, he said.

The North Dakota Student Association supports the federal legislation, but it was hotly debated and resulted in a split vote, said Ken Story, president of the student group.

Students fear losing services from the Bank of North Dakota, but the opportunity for increased Pell Grant dollars outweighed that concern, said Story, who attends North Dakota State University.

“We want to help our state, but at the same time we need to get more aid for our students,” Story said.

If the House version of the bill is approved, the Bank of North Dakota would not be out of the student loan business entirely.

The bank would still service all existing loans and would offer alternative loans through the Dakota Educational Alternative Loan program, Hardmeyer said.

In 2009, the Bank of North Dakota made 95,000 student loans totaling

$219 million, Hardmeyer said. About 18,000 were through the DEAL program, which won’t be affected by the legislation.

The state-owned bank, founded in 1915, is the repository for most state funds. Deposits are guaranteed by the state.

The North Dakota University System has been doing computer work behind the scenes to prepare in case campuses need to switch to direct lending on July 1.

The Board of Higher Education will discuss the issue at its April 8 meeting.

Concordia College decided to switch to direct lending starting this summer regardless of what Congress does, said Jane Williams, director of financial aid.

“We knew it would take a while to get set up for it, and we didn’t want to scramble at the last minute,” Williams said.

Students should see benefits from direct lending, including a streamlined process and many fees and rates that are more favorable, according to information that’s being provided to Concordia students.

Minnesota State University Moorhead already participates in the Direct Loan Program.

Readers can reach Forum reporter Amy Dalrymple at (701) 241-5590