Can the NC State Education Assistance Authority advance state student loan funds to colleges so the colleges can directly make federal student loans to their graduate students?

Plain-English summary

By April 2000, the State Education Assistance Authority (SEAA, the state's primary student-loan agency since 1965) had identified a need that federal law had recently made addressable. The Higher Education Act let qualifying colleges and universities act as eligible lenders for Federal Family Education Loans (FFEL) under 20 U.S.C. § 1085. Grad and professional schools, in particular, could benefit from making FFEL loans directly to their own students rather than routing everything through SEAA's traditional contract agent, College Foundation, Inc. The proposed mechanism: SEAA would advance funds from the NC Student Loan Fund to eligible NC institutions, the institutions would make FFEL loans to their grad and professional students, and the institutions would later repay the advances (and SEAA would have the option to purchase the resulting loans).

Dr. Steven Brooks, on SEAA's behalf, asked the AG whether the Authority had statutory authority for this kind of arrangement. Senior Deputy AG Grayson G. Kelley and Special Deputy AG Thomas J. Ziko answered yes.

Statutory construction by purpose. The AG started from the foundational principle that courts construing agency-empowering statutes try to give effect to legislative purpose, citing NC Rate Bureau, Stevenson v. Durham, Redevelopment Commission, and Alexander v. NCDHR. NC courts do not redirect agency action that rests on a permissible construction of the enabling statute.

SEAA's broad purpose. § 116-201(a) declares it "in the public interest and essential to the welfare and well-being of the State" to provide financial assistance so qualified students can attend college. § 116-203 designates SEAA's functions as essential governmental functions, and § 116-208 directs liberal construction. Together, those provisions make the SEAA's enabling statute a strong candidate for broad reading.

Specific empowering provisions.
- § 116-209.3 expressly gives SEAA the power "to develop and administer programs and perform all functions necessary or convenient to promote and facilitate the making and insuring of student loans."
- § 116-204(8) gives SEAA the power "[t]o do all other acts and things necessary or convenient to carry out the powers expressly granted in this Article."
- § 116-204(3) lets SEAA acquire and dispose of personal property (including the right to purchase loans).
- § 116-204(4) lets SEAA enter contracts and agreements.

Precedent for implied authority. In 1980, the AG had concluded that SEAA could make loans to parents of students under the same broad-grant theory, even though Article 23 didn't expressly list parent lending. 50 N.C.A.G. 46 (1980). The 2000 opinion read that earlier opinion as confirming SEAA's implied powers extend to any reasonable program facilitating student lending.

Federal compatibility. 20 U.S.C. § 1085 makes eligible institutions eligible lenders under FFEL, with conditions. The proposed program required institutions to use special allowance and interest payments from borrowers for need-based grant programs (20 U.S.C. § 1085(d)(2)(F)). The AG concluded the federal framework was compatible with SEAA's plan: advancing funds to institutions to make FFEL loans, with the option for SEAA to purchase those loans later.

Bottom line. The AG concluded SEAA had the power to create and administer the proposed institutional student loan program. The program would expand the pool of NC FFEL lenders, give graduate and professional students more borrowing options, and remain within the bounds of Article 23 of Chapter 116. The opinion noted SEAA had to genuinely deem the program necessary or convenient for student lending; the broad-construction principle was not a blank check, just a permissive lens.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The federal student loan landscape has changed significantly: the FFEL Program was effectively terminated in 2010 when Congress directed all new federal student loans to be Direct Loans from the U.S. Department of Education under the Health Care and Education Reconciliation Act. SEAA's specific role and authorities under Article 23 of Chapter 116 have also been amended.

Background and statutory framework

SEAA's founding mission. Created in 1965 as a state instrumentality for postsecondary financial assistance. The agency has issued revenue bonds and used the NC Student Loan Fund to provide loan capital when private lenders pulled back from the federal student loan program. Article 23 of Chapter 116 of the General Statutes is its enabling statute.

The Federal Family Education Loan Program. Created under Title IV of the Higher Education Act of 1965 as amended, FFEL was the major federally guaranteed/insured student loan program until its phase-out in 2010. Banks, nonprofit guarantee agencies (like SEAA), and certain eligible institutions could originate loans under FFEL, which the federal government guaranteed/insured. The institutional eligible-lender path (20 U.S.C. § 1085) was less commonly used than the bank route.

Why graduate and professional students specifically. Grad and professional borrowers tend to have larger loan needs and more complex situations. Allowing an institution to act as a direct lender for its own students lets the school's financial aid office coordinate timing, eligibility, and disbursement more tightly.

The proposed structure.
- SEAA advances funds from the NC Student Loan Fund to institutions that qualify as FFEL eligible lenders under 20 U.S.C. § 1085.
- Institutions use the advances solely to make FFEL loans to grad and professional students.
- The loans must be insured by SEAA per the Higher Education Act.
- Institutions agree to repay the advances with interest on a future date.
- SEAA has the option to purchase the loans funded from the advances when the institution repays.
- Institutions must use special allowance and interest payments per 20 U.S.C. § 1085(d)(2)(F) for need-based grant programs at their own campuses.

Construction principles applied. The AG used the standard rule: where a statute lists broad purposes plus "all necessary and convenient" general powers, an agency action that reasonably furthers the statutory purpose is within its powers, even without an express grant. Stevenson v. Durham and NC Rate Bureau anchor that approach for NC.

Precedent on parent lending. In 50 N.C.A.G. 46 (1980), the AG had concluded SEAA could lend to parents of students under the same broad-grant principle. The 2000 opinion treated parent lending as a paradigmatic example: the express statutory powers spoke of student loans, but the agency could implement related programs that fit the broader purpose.

Common questions

Q: Why couldn't SEAA just make FFEL loans directly to grad students itself?

A: SEAA traditionally lent through its contract agent, College Foundation, Inc., because SEAA was not administratively equipped to make loans directly to students. The institutional path let institutions do the borrower-facing work using SEAA's capital.

Q: Did colleges need to be approved by anyone to participate?

A: Yes. The institutions had to qualify as eligible lenders under 20 U.S.C. § 1085 of the federal Higher Education Act. SEAA also entered agreements with each participating institution governing the advance-and-repay terms and SEAA's option to purchase the resulting loans.

Q: What happened to the loans after the institution issued them?

A: Per the proposed structure, the institution repaid the advance and SEAA had the option to purchase the loans. That let SEAA keep the loans in its portfolio if it chose, or let the institution hold them.

Q: Did the program ever launch?

A: The AG opinion authorized SEAA to proceed under the proposed structure. Whether or not the specific program actually operated is not addressed in the opinion text. The FFEL Program's 2010 phase-out terminated this and similar institutional lending arrangements.

Q: What about the special allowance and interest payments?

A: 20 U.S.C. § 1085(d)(2)(F) requires that institutions acting as FFEL eligible lenders use the proceeds from special allowance payments and interest from borrowers for need-based grant programs at their own campuses. The AG's analysis incorporated this federal restriction as part of the program structure.

Citations from the opinion

• N.C. Gen. Stat. §§ 116-201, 116-201(a), 116-203, 116-204, 116-204(3), 116-204(4), 116-204(8), 116-208, 116-209.3
• 20 U.S.C. § 1085; 20 U.S.C. § 1085(d)(2)(F)
• 50 N.C.A.G. 46 (1980) (prior AG opinion on parent lending)
• State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau, 300 N.C. 381, 269 S.E.2d 547 (1980)
• Stevenson v. City of Durham, 281 N.C. 300, 188 S.E.2d 281 (1972)
• Redevelopment Commission v. Security National Bank of Greensboro, 252 N.C. 595, 114 S.E.2d 688 (1960)
• Alexander v. N.C. Department of Human Resources, 116 N.C. App. 15 (1994)

Source

• Landing page: https://ncdoj.gov/opinions/state-educational-assistance-authority-power-to-implement-institutional-student-loan-program/

Original opinion text

Reproduced from the NCDOJ landing page. The linked landing page is authoritative.

Re: Advisory Opinion; State Education Assistance Authority; Power to Implement Institutional Student Loan Program; G.S. §116-209.3.

Dear Dr. Brooks:

On April 3, 2000, you wrote to request an advisory opinion regarding the power of the State Education Assistance Authority (hereinafter "the Authority") to create and administer an institutional, student loan program under which the Authority would advance funds from the North Carolina Student Loan Fund (hereinafter "the Student Loan Fund") to qualified institutions to enable those institutions to make Federal Family Education Loans, under the Higher Education Act of 1965, as amended, directly to and for the convenience of their graduate and professional students.

The General Assembly created the Authority in 1965 as the primary North Carolina instrumentality for providing a comprehensive program of inter-institutional financial assistance to ensure postsecondary educational opportunities for the citizens of this State and to foster access to higher education in North Carolina. G.S. § 116-201. Under Article 23 of Chapter 116 of the General Statutes, the General Assembly granted the Authority broad authority to operate financial assistance programs to aid students in attaining postsecondary education. Since its inception, the agency has utilized it powers and authority, in conjunction with its contract agent College Foundation, Inc., to provide funds for making guaranteed student loans under the Higher Education Act of 1965, as amended. Throughout its nearly thirty-five year history, the Authority has been the only consistent source of educational loan capital in the State. When banks and private lenders have withdrawn from the educational loan program, the Authority has utilized its power to issue revenue bonds as well as the resources of the North Carolina Student Loan Fund to insure the availability of student loans.

In your letter, you note how the Authority has now identified the need for individual colleges and universities to have the convenience and discretion to make Federal Family Education Loans to meet the financial needs of their graduate and professional students. The Higher Education Act of 1965, as amended, permits eligible institutions under the Federal Family Education Loan Program to act as eligible lenders under certain circumstances. To facilitate the making of education loans to graduate and professional students, the Authority proposes to advance funds to qualified North Carolina institutions of higher education on a short-term basis and then to purchase those loans when the institution repays the advances. For purposes of our response, I have summarized the essential components of the proposed program as follows:

• The Authority will advance funds from the North Carolina Student Loan Fund to any institution of higher education within the state that desires to act and qualifies as an eligible lender under Section 435 of the Higher Education Act of 1965, as amended (20 U.S.C. 1085);
• The funds will be advanced for the sole purpose of enabling the institution to make Federal Family Education Loans to its graduate and professional students;
• Each institution will be required to agree to use the funds only for Federal Family Education Loans that are insured by the Authority in accordance with the Higher Education Act of 1965, as amended;
• Each institution will enter into an agreement with the Authority to repay the advances with interest on a future date, at which time the Authority will also have the option to purchase the loans funded from the advances; and
• Pursuant to 20 U.S.C. 1085(d)(2)(F) institutions will be required to use the proceeds from special allowance payments and interest payments from borrowers for need-based grant programs at their campuses.

Your letter contains a more detailed explanation of the proposed program and is therefore incorporated by reference for a more specific recitation of the facts upon which this opinion is based.

Based upon the foregoing facts, you have asked us to provide you with an opinion on the following legal question:

Does the Authority have the power to create and administer an institutional, student loan program through which funds from the North Carolina Student Loan Fund would be advanced to qualified North Carolina institutions of higher education to enable those institutions to make Federal Family Education Loans directly to and for the convenience of their graduate and professional students?

For the reasons and under the circumstances explained herein, we conclude that the Authority has the power to create and administer such an institutional, student loan program consistent with the provisions of Article 23 of Chapter 116 of the General Statutes.

The question of the Authority's power to create and implement programs is one of statutory construction. In construing laws that create and empower State agencies and political subdivisions, the courts strive to ensure that the purpose of the General Assembly in enacting those laws is accomplished. E.g. State ex rel. Commissioner of Insurance v. North Carolina Rate Bureau, 300 N.C. 381, 269 S.E. 2d 547, reh. denied, 301 N.C. 107, 273 S.E. 2d 300 (1980). The legislative purpose is manifest in the language of the statute, the spirit of the act and its objective. Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E. 2d 281, 283 (1972). Furthermore, statutes in pari materia are construed together. Redevelopment Commission v. Security National Bank of Greensboro, 252 N.C. 595, 114 S.E. 2d 688 (1960). The courts do not redirect the acts and policies of State agencies as long as they are based on a permissible construction of the applicable statutes. See, Alexander v. N.C. Department of Human Resources, 116 N.C. App. 15 (1994).

The General Assembly's general intent in creating the Authority and the Authority's general purpose are described in G.S. §116-201(a) which provides:

The purpose of this Article is to authorize a system of financial assistance, consisting of grants, loans, work-study or other employment, and other aids, to assist qualified students to enable them to obtain an education beyond the high school level by attending public or private educational institutions. The General Assembly has found and hereby declares that it is in the public interest and essential to the welfare and well-being of the State and to the proper growth and development of the State to foster and provide financial assistance to properly qualified students in order to help them to obtain an education beyond the high school level. The General Assembly has further found that many students who are fully qualified to enroll in appropriate educational institutions for furthering their education beyond the high school level lack the financial means and are unable, without financial assistance as authorized under this Article, to pay the cost of such education, with a consequent irreparable loss to the State of valuable talents vital to its welfare.

G.S. §116-201(a) (1999).

The General Assembly further determined that the operation of a proper system of financial assistance for these purposes serves a public purpose and is fully consistent with the long established policy of the State to encourage, promote and assist education to enhance economic development. Id. Moreover, the General Assembly deemed the exercise of the powers conferred by Article 23 to be an essential governmental function and mandated that Article 23 be liberally construed to effect the beneficial purposes of the Article. G.S. §§116-203 and 208.

General Statute Section §116-209.3 specifically provides the Authority with the power to develop and administer programs and perform all functions necessary or convenient to promote and facilitate the making and insuring of student loans and providing such other student assistance and services as the Authority shall deem necessary or desirable for carrying out the purposes of this Article. Furthermore, pursuant to N.C. Gen. Stat. §116-204 the Authority is empowered, among other things:

(3) To acquire, hold and dispose of personal property in the exercise of its powers and the performance of its duties;

(4) To make and enter into all contracts and agreements necessary or incidental to the performance of its duties and the execution of its powers under this Article; . . . [and]

(8) To do all other acts and things necessary or convenient to carry out the powers expressly granted in this Article; provided, however, that nothing in this Article shall be construed to empower the Authority to engage in the business of banking or insurance.

This office has previously relied on these broad grants of authority to hold that the Authority may make loans to parents of students even though that power is not expressly recited in Article 23. 50 N.C.A.G. 46 (1980).

While it has the power to make loans, the Authority is not administratively equipped to make loans directly to students. Consequently, the Authority has traditionally loaned funds to students and parents through its contract agent, College Foundation, Inc. Historically, the North Carolina Student Loan Fund (the "State Education Assistance Authority Loan Fund" as designated by N.C. Gen. Stat. §116-209.3) has been the source of capital for student loans and for special programs that either enhance the lending objectives of the Authority or foster its overall mission. Consistent with that practice and its statutory mission, the Authority now proposes to provide funds from the North Carolina Student Loan Fund to qualifying colleges and universities to enable those institutions to make guaranteed student loans to their graduate and professional students as permitted under the Higher Education Act of 1965, as amended.

The General Assembly granted the Authority broad powers to foster and provide financial assistance to properly qualified students (G.S. 116-201(a)) and authorized it "[t]o do all . . . acts and things necessary or convenient to carry out the powers expressly granted." (G.S. §116-204(8). The Authority is expressly granted the power "to develop and administer programs and perform all functions necessary or convenient to promote and facilitate the making and insuring of student loans and providing such other student loan assistance and services as the Authority shall deem necessary or desirable for carrying out the purposes of this Article . . . ." G.S. §116-209.3. Moreover, the General Assembly specifically provided that the assets of the North Carolina Student Loan Fund may be used for "making student loans directly or through agents or in" any other manner consistent with the Article's purpose, including the institutional lending arrangement now proposed.

By expanding the pool of lenders in North Carolina's Federal Family Education Loan Program to eligible institutions within this state, the Authority will foster an effective and efficient system of financial aid for properly qualified students. Furthermore, the proposed institutional lending program may promote access to education in North Carolina by enabling North Carolina institutions to assist graduate and professional students who may not otherwise borrow funds provided by the Authority.

Therefore, given the Authority's statutory authority to develop and administer programs that are necessary or convenient to facilitate the making of guaranteed student loans, we conclude that the Authority has the power to advance funds to eligible North Carolina institutions of higher education to enable those institutions to make guaranteed student loans to their graduate and professional students as permitted under the Higher Education Act of 1965, as amended, as long as the Authority deems such a program necessary, or at least convenient, for promoting or facilitating the making of educational loans to those students.

We trust that this advisory opinion provides the legal guidance you need regarding the Authority's powers with respect to the question presented. If we may be of further assistance on this issue or others, please write again.

Signed by:

Grayson G. Kelley, Senior Deputy Attorney General
Thomas J. Ziko, Special Deputy Attorney General