Questions Remain About Montgomery County’s Ability to Set Up Student Loan Refinancing Operation
Council puts off making decisions until it has more answers
Montgomery County Council members said Thursday they’d like a state study and more information before proceeding on a proposal to set up a county-funded student loan refinancing authority.
Council member Tom Hucker has promoted the authority to ease student debt expenses for Montgomery County residents, allowing them to refinance their loans at lower interest rates than the federal government or private lenders provide.
Hucker has said the operation could be self-sustaining, with the loan payments paying off the county’s initial start-up costs over time.
County Executive Ike Leggett has publicly opposed the effort to start a local refinancing authority. He agreed with county Chief Administrative Officer Tim Firestine that the money needed to start the program would not be the best use of the county’s limited resources.
The county’s Department of Finance has estimated the agency would need $20 million to $30 million to start a $100 million refinancing program, which could be provided through general-obligation bonds or a one-time cash appropriation. In addition, Firestine estimated that the county would have to pay $3 million to $5 million in upfront operating costs to start up and staff the agency before it became self-sustaining to the point where it could pay off bonds.
The General Assembly earlier this year passed legislation that enabled the county to set up a refinancing authority, but the council has not introduced a bill to do so.
On Thursday, council staff members informed the council’s Government Operations and Education committees they should seek more information from state legislative researchers, the county’s General Assembly delegation and the county’s Revenue Authority before going further with the proposal.
The council’s staff also encouraged council members to figure out how much it would cost the county to set up a refinancing agency.
Jacob Sesker, a senior legislative analyst for the county, noted that no other local jurisdiction has set up a refinancing authority. States that have done so have already had student loan programs in place before launching an authority, according to Sesker.
Del. Anne Kaiser (D-Silver Spring) said Thursday that she plans to submit a bill during the General Assembly’s 2018 session that calls for a statewide study to examine the market for a statewide refinancing authority.
She said the market study would examine how a refinancing authority could be set up in Maryland—including how much the startup costs would be, how big it should be and what interest rates it could provide. The study could provide the county with answers about whether it could provide interest rates low enough to make the program worth it, according to the council’s staff.
Kaiser added that the state would be best suited to set up a refinancing authority given its greater bonding capacity.
“It’s certainly fair for the county to look at it as well,” Kaiser said. She noted that the state had a refinancing authority from the 1970s to the early 1990s, but it was ended due to changes in federal law.
Sesker said the state study could provide information about whether the county may use tax-exempt bonds to finance the agency. Using tax-exempt bonds would be one way to provide the low interest rates needed to undercut existing refinancing programs.
The state allocates a portion of the tax-exempt bonds it gets from the federal government to counties and more than half are used for affordable housing, according to Robert Hagedoorn, the chief of the county’s Division of Treasury. Sesker noted that if the county uses these funds to start the authority, it could mean less money available to build affordable housing.
He said other states, such as Rhode Island and South Carolina, that set up refinancing authorities already had an existing loan portfolio generating revenue, so their startup costs were “very, very low.”
Council member Marc Elrich said the county may be able to try to reduce costs by partnering with a state that already offers a refinancing program.
Council member Craig Rice questioned why the county would start a refinancing program unless it could provide significantly lower interest rates than currently available programs. He expressed concern that to make the program self-sustaining, it couldn’t admit people who have poor credit and are struggling to pay their student loans.
“Why are we looking to create a program unless there’s going to be significant benefit?” Rice asked.
Hucker said a program letting residents with high student loan interest rates reduce their costs could make the county more attractive to young families.
Nancy Navarro, the chairwoman of the council’s Government Operations committee, said the council would seek additional answers before going any further.
“We want to see if this is something worth pursuing,” Navarro said.