Legislation signed by President Barack Obama on Tuesday will change the Bank of North Dakota's role with student loans but won't eliminate it entirely.
Starting July 1, the state-owned bank will no longer provide federally subsidized loans to borrowers as all colleges and universities switch to the Direct Loan Program.
However, the Department of Education plans to award contracts to nonprofit entities in 2011 to provide service for some of the direct loans.
Bank of North Dakota President Eric Hardmeyer said the bank plans to apply to be one of the contractors.
"Our hope is we could carve out North Dakota as a geographic location that we could service," Hardmeyer said.
In addition, the Bank of North Dakota will still offer the Dakota Educational Alternative Loan program and will continue servicing its current student loan portfolio of more than
"We're not out of the student loan business altogether, just that piece of it is over for us," Hardmeyer said.
The federally subsidized loans accounted for 75 percent of the bank's student loan portfolio, he said.
The impact on the bank's profits will be insignificant in the short term because the profit margin on student loans is "very, very thin," he said.
"In the long run, it will become more and more significant," Hardmeyer said.
The new legislation means campuses in the North Dakota University System will need to switch to the Direct Loan Program.
Laura Glatt, vice chancellor for administrative affairs, has said the university system began making changes to its computer system in preparation for the change.
The state Board of Higher Education will discuss the issue next week.
For North Dakota borrowers, the main downside of the new legislation may be a loss in customer service, Hardmeyer said.
Once they're repaying their loans, students will need to call one of four federal contractors with questions, rather than their local bank, he said.
"It's going to be somebody in a call center somewhere around the country," Hardmeyer said.
Minnesota State University Moorhead already participates in the Direct Loan Program, and Concordia College began the process of converting in anticipation of the new legislation.
Readers can reach Forum reporter Amy Dalrymple at (701) 241-5590