WASHINGTON -- A Maryland state agency failed in an attempt in the Supreme Court yesterday to get back nearly $11 million in college student loan funds that it was ordered to hand over to the federal government in 1988.
The Maryland Higher Education Loan Corp., joined by similar agencies in three other states, was unable to persuade the court to hear their constitutional challenge to the forced transfer of college loan "cash reserves" to the U.S. Department of Education.
Congress, having found that a number of states were building up millions of dollars in reserves to cover losses when students defaulted on government-guaranteed loans, passed a law in 1987 requiring "excess" reserves to be handed over to Washington.
The theory was that the state agencies did not need those extra amounts to cover obligations on defaulted loans.
A major part of the reserve funds had come from payments or allowances by the federal government, which insures the student loan program.
For the Maryland agency, federal officials calculated its excess reserves at $10,797,400, and it was told to hand the funds over to Washington.
Nationwide, states were told to return about $250 million in excess funds.
Several of the state agencies, including Maryland's, contended that the money in their student loan reserves was their property.
And, they contended, it was unconstitutional for Congress to seize those funds by the congressionally ordered transfer.
Those challenges failed in the 4th U.S. Circuit Court of Appeals in Richmond, Va., and in other federal appeals courts, so the state agencies attempted to take the dispute on to the Supreme Court, only to be rebuffed yesterday without explanation.
Maryland's agency had refused to transfer the funds as ordered, so the Department of Education simply deducted the amount due Maryland in future planned payments.