Bank of North Dakota to Sell Its Federal Student Loans
Last week, the Bank of North Dakota announced it is selling its remaining federal student loan portfolio. The bank chose to transfer and sell the portfolio to the non-profit North Texas Higher Education Authority (NTHEA). The sale is expected to be finalized in early 2018.
The bank had steadily built its federally-insured student loan portfolio until the Department of Education took control of the federal loan lending program during the student loan overhaul in 2010. Going forward, the bank did not issue any new federal loans, but it still continued to service the loans it already had. These are the loans up for sale.
CEO Eric Hardmeyer explained that leaving the federal loan industry in 2010 wasn’t feasible because at the time, federal loans made up a sizeable chunk of the company’s loan portfolio. With 57,000 borrowers carrying a total of $800 million in debt, that portfolio represented as much as 80 percent of the company’s total student loan portfolio.
However, the bank’s federal portfolio shrunk considerably following the student loan overhaul. In the past seven years, this figure has dropped substantially to just 19,000 borrowers carrying $255 million in debt. The loans now represent 18 percent of the company’s total portfolio.
The bank chose to leave the federal student loan business and instead focus on growing its state-sponsored loan program. They will also continue offering refinancing options to its customers. For those who don't know, student loan refinancing, or consolidation loans, are offered to student loan borrowers who want to restructure their loan agreement. This means a new interest rate and repayment term on a completely new loan, which was used to pay off the old loans.
The Bank of North Dakota also plans to upgrade their software system, so it will be easier to use and make it easier to serve customers. "It's really just a matter of prioritization for us and wanting to put our resources into something that is growing," Hardmeyer added.
In a video posted on the company’s website, Hardmeyer cited the “regulatory burden and heavy servicing work” as the company’s main reason for selling the portfolio. Hardmeyer also stated that they chose NTHEA because the company is “similar in size and scope” to the Bank of North Dakota.
They were also impressed by the nonprofit’s commitment to delivering excellent customer service. Phillip Wambsganss, Executive Director of NTHEA, claimed that “The average speed time to respond, we have a goal of 60 seconds. And the last three months we've been around 25 seconds to get to phone calls.”
The bank notified all borrowers of the pending sale last week and stated that the sale won’t affect the payment amounts, interest rates, or due dates for current borrowers. Hardmeyer said that going forward the only real change is that delinquent borrowers will be “talking to someone in Texas rather than North Dakota.”