County Council member Tom Hucker believes he has enough support on the council to establish a county-run student loan refinancing agency, despite opposition from County Executive Ike Leggett.
Hucker said in an interview Friday that the agency could be a revenue-generating department for the county and help residents struggling to pay student loans refinance at lower interest rates.
“Young people in Montgomery County are facing mountains of student debt and it not only constrains their dreams, it stunts our local economy because they aren’t able to buy houses, start businesses or further college educations,” Hucker said.
Hucker led a local effort to encourage state legislators to pass enabling legislation to give the county the authority to establish the agency. The legislation was passed during the 2016 General Assembly session.
He said staff are nearly finished drafting the council bill to establish and fund the agency and he will probably introduce it in September. The council then will schedule a public hearing to allow residents to weigh in on the proposal. He said he has “very high confidence” it will pass the all-Democratic, nine-member council.
“I can’t imagine why it wouldn’t pass,” Hucker said.
Leggett opposed creating the agency after county Chief Administrative Office Tim Firestine criticized the proposal in a memo, saying the agency would “not be the highest and best use of our limited county financial resources.”
Also, the county’s Department of Finance noted the agency would need to spend about $20 million to $30 million to start a $100 million refinancing program. Those funds could be raised through taxable general obligation bonds or a one-time cash appropriation from the county, according to the department. The bonds would be paid off as residents repay their student loans. Firestine wrote that upfront costs and ongoing operating costs could add up to $3 million to $5 million for the first three to five years before the authority established a large enough portfolio of loans to generate adequate income to be self-sustaining.
Firestine warned the credit rating of new bonds secured by student loan payments would be uncertain until the county knows the credit quality of the borrowers.
“It is unlikely that the county could meet the start-up funding requirements of the [authority] without issuing debt, which would further add to the county’s already high debt ratios,” Firestine wrote.
Hucker disputed Firestine’s concerns by saying that student loan debt has a low delinquency rating, meaning fewer borrowers default on their loans than in other types of borrowing, because it’s difficult to discharge such loans through filing for bankruptcy. The National Consumer Law Center notes that student loans can only be discharged in bankruptcy if a borrower can prove repaying the debt “will impose an undue hardship on you and your dependents.”
A county Office of Legislative Oversight report released in June that examined the feasibility of setting up the agency found that overall student loan payment delinquency in Montgomery County is relatively low and the county would benefit from demographics that include a large number of undergraduate and graduate borrowers “with high earnings, low rates of unemployment and greater family resources.”
States such as North Dakota, Rhode Island and South Carolina have set up their own student loan agencies, although no county in the U.S. has done so, according to the report.
Hucker said he believes no other counties operate a student loan refinancing agency because they lack the authority to do so, which Montgomery County now has. He said that thanks to the county’s AAA bond rating, the highest a municipality can receive, the county can float tax-free bonds that would enable the agency to provide lower interest rates than private lenders.
“This is one of the most powerful ways I know to lower the cost of living in Montgomery County,” Hucker said. “We’re doing everything we can to attract and retain high quality employees. This is one tool in our toolbox we can be using to retain teachers, Montgomery County police officers and Montgomery County firefighters.”
Diane McCaffrey, an administrative secretary at Diamond Elementary School in Gaithersburg, said in an interview Wednesday she recently consolidated her student loans at a lower interest rate and would support the county setting up the authority.
“I think it’s an awesome idea,” McCaffrey said. “I wish it had been available when I consolidated my loans, especially if it’s offering a lower interest rate.”
It’s not immediately clear whether other council members will support the proposal, although they did approve pursuing the enabling state legislation to give them power to set up the loan agency.
On Wednesday, County Council member Hans Riemer said he still needs to examine the plan.
“I think it’s an intriguing idea that’s for sure,” Riemer said.