Missouri's governor, Matt Blunt, and state legislative leaders have reached an agreement that will free $350-million for colleges and universities in the state, most of which will be used to pay for 22 campus construction projects. The deal, which was announced over the weekend, comes after two similar proposals to raise money for higher education were defeated.

Under the agreement, the state's student-loan agency -- the Missouri Higher Education Loan Authority -- would sell off hundreds of millions of dollars in student loans in an open-bidding process, and then transfer the profits from the sales to the Missouri Development Finance Board, an economic-development agency that works closely with the state government. Alternatively, the Associated Press reported, the lending authority could sell the loans directly to the finance board, which could resell them. In either case, the proceeds would be distributed to college and universities.

The complicated transfer was necessary to avoid potential legal trouble about allocating money directly to institutions of higher education. Lawmakers had questioned whether the lending body had the authority to spend the money on projects outside its scope of student aid.

Officials of the loan authority said their intention is for the terms and conditions of the loans that are sold to remain the same. Those loans could end up in the hands of private, for-profit lenders such as Sallie Mae, the nation's largest student-loan provider, or Nelnet, a national loan company based in Nebraska.

Earlier attempts by Governor Blunt, a Republican, to raise money by selling student-loan assets had been blocked by the state legislature and the state attorney general's office. The governor's first proposal, announced in January, called for selling off the entire lending authority, which provides and processes billions of dollars in student loans each year. The governor eventually decided on a plan to sell only $450-million in assets. But in less than a month, the attorney general sued to stop that deal on the grounds that the closed-door meetings in which the loan authority's board members had discussed the potential sale violated Missouri's sunshine laws.

The plan to sell part of agency's assets never came to a final vote in the legislature in May. Mr. Blunt's office then announced plans to pursue the money through different means, by circumventing the lawmakers. But talks continued, and the latest deal -- which will not require the legislature's approval -- won the support of the speaker of the Missouri House and the Senate's president pro tem, both Republicans. In exchange for backing off, the legislature won the governor's support for millions of dollars worth of scholarships and other measures.

But the move remains controversial because it could shift money from the lending agency -- which significantly lowers the costs of federal loans to borrowers in the state by providing generous discounts -- to a private company. In 2004, Sallie Mae attempted to purchase a state-run student lender in Pennsylvania, a move that was met with fierce opposition in that state. Sallie Mae has denied having a hand in persuading governors in several states, including Missouri, to put their state loan agencies up for sale. But company officials have said that they would bid on the loans if they became available.

As compensation for selling assets, the Missouri lending authority will receive $1-billion in bond allocations over the next decade. In addition to the $313.9-million the sales will generate for construction projects, the deal will also provide $18-million for community colleges, $15-million for an endowment to help universities commercialize their research, and smaller amounts for other projects.

(The Chronicle of Higher Education)