The state-owned Bank of North Dakota announced Monday that it's getting out of the federal student loan business, a move the bank president said won't affect borrowers financially and should aid the bank in a couple of ways.
The bank's federal student loan portfolio has shrunk in recent years to less than a third of its former size, and selling it will enable the bank to focus on its own student loan program, which has been steadily growing.
"It's really just a matter of prioritization for us and wanting to put our resources into something that is growing," Bank President Eric Hardmeyer said.
The bank had been in the business of making federally guaranteed student loans for nearly half a century when the U.S. Department of Education took over the program during a financial aid overhaul in 2010. The bank made no more federal loans after that but continued to service the federal loans it already had made.
"That was a big chunk of our assets at the time," Hardmeyer said of the decision not to get out of the federal loan business altogether at the time. "That would have hurt our earnings."
The bank's federal portfolio has since shrunk from 57,000 borrowers with $800 million in debt to 19,000 borrowers with $255 million in debt. The bank is selling the portfolio to the nonprofit North Texas Higher Education Authority for slightly more than the face value of the loans.
The sale will be complete early next year. The handful of bank employees who have been servicing the federal loans will then be able to help with the growing volume of state loans, according to Hardmeyer.
The bank also will be able to begin updating its software system, which is built to handle both federal and state loans and is "not nimble," Hardmeyer said. That should improve customer service, he said.
Borrowers are being notified of the sale this week. It will not affect their interest rates, payment amounts or due dates.
"The only significant change (to borrowers) is that if there's a servicing or delinquency issue, they'll be talking to someone in Texas rather than North Dakota," Hardmeyer said.
"We went through a pretty vigorous vetting process" before choosing the nonprofit to try to ensure quality service, he added.
The bank started its own student loan program 20 years ago. It also launched a program three years ago that enables borrowers to consolidate and refinance all of their student debt, including federal loans. The bank's state-sponsored loan portfolio has more than 80,000 customers with more than $1.1 billion in loans.