Lessening the Student Loan Load

Bank of North Dakota offers unique consolidation program for residents

BY KRIS BEVILL

On April 26, 2013, North Dakota Gov. Jack Dalrymple signed into a law a bill requiring the Bank of North Dakota to administer a student loan consolidation program. Originally proposed as a program to offer consolidation services to physicians working in rural areas of the state, the bank’s final marching orders were to create a program aimed at any North Dakota citizen wishing to consolidate their student loans. After a year of development, BND rolled out the DEAL One program last April. By the end of November, the bank had dispersed $126 million in loans to about 2,800 borrowers and had another 300 loans, representing about $13 million, pending, according to Eric Hardmeyer, BND’s president and CEO.

“We [were] almost at $140 million in eight months, so we think that by any kind of measuring stick we’ve been very successful with this program,” he says.

Unique Features

Consolidation loans are certainly not a new concept, but Hardmeyer believes BND’s DEAL One program is a first of its kind, primarily because it allows borrowers to consolidate all of their student loans — federal, state and alternative — into one loan. “We think that we’re the first in the nation to do this,” he says. “For years, there’s been a very competitive market for refinancing mortgages, but never really anything has existed for individuals consolidating all of their student loan debt.”

The program also boasts no fees for participants and offers competitive variable or fixed interest rates. The variable rate through March is 1.74 percent while the fixed rate is 4.83 percent. Hardmeyer says he is not aware of any other variable interest rate as low, and notes that to protect variable rate-takers from large increases the program caps rate increases at 1 percent annually. “We think that’s a huge benefit,” he says.

Payment Progress

Lisa Mosser, president at Cando, N.D.’s American Bank Center location, says she learned of the DEAL One program while attending an Independent Community Banks of North Dakota Emerging Leaders program event and immediately thought it could be useful for her husband. She had financed, and already repaid, her education loans through BND, but his loans had been financed by a different provider, and after a decade of repayments he still owed about $18,000 on an initial loan of $23,000. “I felt like we were just paying and paying on it and the balance wasn’t going down,” she says.

Consolidation through the DEAL One program lowered her husband’s monthly payment by about $70, and Mosser says the couple noticed immediate progress in reducing the principal owed on the loan. She was so pleased with the results and the entire process that she invited all of her immediate family to utilize the program and says she would recommend it to others as well.

Jennifer Kuschel, a pharmacist at Medical Pharmacy in Fargo, says she submitted her loan application the same day she learned the program had been announced.

“I had been waiting for any way to get my student loans out of Sallie Mae,” she says.

Before consolidating, Kuschel’s monthly student loan payments had been “the size of a small mortgage.” Through BND, she was able to reduce her interest rate payment by more than $300 per month. “I’m going to pay this off years faster than I was going to,” she says, adding that she has been very satisfied with both the interest rate and the level of service from the bank. “I’ve been telling everybody I know to get their loans consolidated.”

Hardmeyer says the average loan amount for program participants has so far been about $45,000, but loans have ranged from as little as $5,000 to more than $100,000. Medical professionals, who typically have large amounts of student loan debt to deal with, are ideal candidates for consolidation, but he says he encourages anyone with a good credit score and the ability to repay the loan to consider the program. He notes that it is not uncommon for people to put off major life changes such as buying a home or starting a family because they are strapped with hefty student loan payments and says he has witnessed the program aid in alleviating that burden. In one example, he says a college graduate was living with her parents because her monthly $500 student loan payment was eating away at her disposable income. Through the DEAL One program, she was able to lower the interest on the loan and stretch payments out over about 20 years, effectively cutting her monthly payment in half.

“You’re talking about a monthly savings of around $300 and that’s fairly typical of what we see,” Hardmeyer says. “This program in some cases has really helped with those kinds of personal financial choices.”

Recruitment Tool

There are a few restrictions to the program and Hardmeyer admits it’s not for everyone. To qualify, participants must be residents of the state for at least six months and must meet BND’s credit criteria. Also, while the DEAL One program allows for some hardship requests and provides security such as death forgiveness, it does not offer the same type of income-based repayment plans and loan forgiveness features that federal student loans provide. However, considering the positive response received so far and the never-ending pipeline of potential new customers, BND intends for the program to be permanent and will allocate $150 million each year for at least the next several years to fund the program. “We’re going to continue to see people graduate, live in the state and will want to consider this program, so we see [it] as an ongoing program that will last for years,” Hardmeyer says.

And while it may not have been a specific goal initially, because the program is geared exclusively toward North Dakota

Pipeline of potential customers

A report released in November from the Project on Student Debt at The Institute for College Access & Success found that in 2013 nearly 70 percent of graduating seniors at public and private nonprofit colleges had student loans. The national average debt for these graduates was $28,400, a two percent increase from the year prior.

The report also compiled state averages for student debt at graduation. North Dakota was the only state which did not receive a ranking, however. According to the report’s authors, the institute compiled its data based on voluntary information submitted by higher education institutions and did not calculate state averages if the data submitted covered less than 30 percent of bachelor’s degree recipients or if the underlying data for the state showed a one-third or more change in average debt from the previous year. The usable data submitted by North Dakota institutions totaled only 25 percent of bachelor’s degree graduates, according to the report.

South Dakota’s average student loan debt was found to be $25,750 per graduate in 2013 and 72 percent of graduates had debt, ranking it second in the nation among the percentage of 2013 graduates with student loan debt. Minnesota reported an average student loan debt of $30,894 and 70 percent of graduates in 2013 had debt, ranking it fourth in the nation for the percentage of 2013 graduates with student loan debt.

The entire report is available at www.projectonstudentdebt.org.

residents, DEAL One could also play a role in the state’s efforts to recruit and retain workers. Hardmeyer says he has recently spent time working with economic development groups to promote the program as part of their workforce attraction strategies. “We’ve spent a lot of time talking about that recently,” Hardmeyer says. “I think it can be a useful tool in the recruitment efforts.”

For more information on the program, visit dealstudentloan. nd.gov PB

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com