 The sale is the culmination of a
standard public offering, which began with bid solicitations going
out to 42 firms nationwide. Ten bidders responded, with the winning
bids coming from Brazos Higher Education Service Corporation, based
in Waco, Texas, and Panhandle-Plains Higher Education Authority of
Canyon, Texas. The transaction was supervised by the consulting
firms Morgan Stanley and Gardner, Underwood and Bacon.
The portfolio sold by ISAC is comprised of 368,924 student loans
made to 191,914 borrowers. The average borrower indebtedness is
$7,239. Of these loans, more than 90 percent are "non-Illinois
nexus" loans, meaning loans to non-Illinois students attending
non-Illinois schools. As with ISAC's earlier portfolio sale in
January, existing borrower benefits will be retained as a condition
of the sale.
Most of the sale proceeds will go toward retiring a portion of
ISAC's existing debt. Of the remaining net proceeds, $26.8 million
is earmarked for the state's need-based Monetary Award Program
grants for about 17,500 students attending Illinois universities and
colleges during the spring 2007 term, as appropriated in the state's
fiscal 2007 budget. The balance of the net proceeds will be used to
support state programs as authorized by the Illinois General
Assembly.
"We are happy with the terms of the deal. This transaction
enables us to pay down debt while recasting ISAC as an Illinois
agency serving Illinois students and taxpayers," ISAC Chairman Don
McNeil said. "This is another giant step for ISAC in exiting the
business of lending to students from Utah going to college in
Boston."
The profitability of the ISAC loan portfolio has declined
dramatically in recent years, and last year the loss reached $7.5
million. Most of this loss was attributable to non-Illinois
borrowers, the result of loan consolidation, an unfavorable interest
rate environment and increased competitive pressure that forced the
agency to offer discounts to attract new borrowers.
"In light of dramatic changes in the student loan industry and
the specter of shrinking federal subsidies, ISAC must cut the amount
of risk we take on behalf of non-Illinois students attending
non-Illinois schools," McNeil said. "The cost of doing business in
the student loan industry has increased significantly. There was no
indication that this portfolio could be considered a stable source
of profits. We owed it to Illinois taxpayers and college students to
make this move."
What may be unprofitable for an agency such as ISAC, however, may
well be profitable for organizations that can look to economies of
scale ISAC does not possess, McNeil noted.
In addition to the $1.38 billion loan sale, ISAC is refinancing
up to $400 million in federally guaranteed loans and $350 million in
alternative loans that have no federal guarantee. These actions are
part of a strategy to simplify the agency's capital structure by
reducing the administrative burden of the various systems it has
developed to manage its complex capital structure and by retiring
some of its debt.
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 "Through these actions we will retire more than $2 billion in
debt which has accumulated over the years. And just as a borrower
feels good when the loan is finally paid off, we are pleased to move
this debt off the books," said Andrew Davis, ISAC executive
director. "The scale of this debt retirement is unprecedented and
will dramatically cut back on the agency's administrative burdens.
We will be a more efficient agency that will better serve the
long-term needs of Illinois families."
Davis expressed confidence that the deal will help ensure the
continuation of ISAC's scholarship and grant administration, as well
as student outreach and counseling activities.
"After the January 2007 sale, we heard the concerns of those who
argued that the loan sale would curb ISAC's outreach activities,"
Davis said. "In fact, we have beefed up our public service outreach
division and are promoting new, innovative programs to remind young
people and their families -- especially those in inner city and
rural communities -- that a college education is both crucial and
accessible."
Davis noted that the net proceeds of the sale will help cover the
cost of MAP, the state's flagship need-based grant program.
"Today's sale transaction enables ISAC to send 17,500 students to
college, move debt off the books, unload a revenue-losing portfolio
and return our focus to Illinois students," Davis said.
In January 2007, ISAC sold 75,370 loans totaling $648 million to
Sallie Mae and the National Education Loan Network, known as Nelnet.
The net proceeds from that transaction enabled ISAC to fund MAP
Plus, first proposed by Gov. Rod Blagojevich and then approved by
the General Assembly in 2006, to assist middle-income students with
college tuition and fees.
Brazos Higher Education Service Corporation is part of the Brazos
Group, the nation's largest not-for-profit holder of student loans,
with total assets in excess of $13 billion. It was founded in 1975
in Waco, Texas.
Panhandle-Plains Higher Education Authority was created in 1979
to serve the needs of students in the west Texas panhandle region by
a former university financial aid director who saw firsthand the
frustration of those unable to afford college.
Created 50 years ago this month, ISAC is the state's central
provider of college aid. Last year, ISAC issued 185,000 grants
totaling $400 million and guaranteed $1.24 billion in loans to
232,631 students. Its 529 prepaid tuition program, College Illinois,
has enabled Illinois families to prepay more than $1 billion in
tuition and fees. For information, visit
www.collegezone.com.
[Text from file received from
the
Illinois Office of
Communication and Information]
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