The agency that administers more than 19,000 state student grants each year has been given until April 1 to develop a plan to wind down its operations, which could mean grants being handled by another agency or, as Rep. Michael Marcello proposes, about $12 million going to the three state institutions of higher learning.

The April 1 deadline was voted on Thursday night by the House Committee on Oversight after a debate of more than an hour on the future of the Rhode Island Higher Education Assistance Authority. RIHEAA was created as a guaranty agency for student loans, however, since the federal government went into the business of direct student loans, revenues from RIHEAA’s portfolio, which has enabled it to operate and build reserves, will dry up. As of Nov. 30, 2013, the agency had $21.9 million in operating reserves; $10.2 million in federal fund reserves; $8.5 million in the CollegeBoundfund administrative fund [used for student grants] and $4.7 million in the Alliance Bernstein contract fund. Marcello, who chairs the committee, said he has requested a phase-out plan for the past year-and-a-half and still hasn’t gotten one.

“That’s what we’ve been waiting for,” a frustrated Marcello said. “The fundamental role it [RIHEAA] was set up for is no longer necessary,” he added.

Lending urgency to the issue is an act of the federal budget approved this year that further diminishes what guaranty agencies can retain on loan default collections. Without any changes in operations, this puts RIHEAA running in the red in the coming fiscal year, rather than in the two- to three-year window it had previously been working with.

In addition to its role as a guarantee agency and managing the grants, RIHEAA oversees the CollegeBoundfund and runs WaytogoRI, a web-based portal used by more than 90,000 students from public and private elementary and secondary schools.

CollegeBoundfund, a college savings plan administered by Alliance Bernstein, generates more than $8 million in revenues for the state. RIHEAA has largely dedicated those funds to make up declining state appropriations for student grants and scholarships. Grants, which are based on financial need, range from $250 to $750.

At its Feb. 6 hearing, Marcello reasoned, with today’s high college costs, the grants barely buy a few books and the funds would be better spent going to URI, RIC and CCRI.

“Is there a better place for this money to go?” Marcello asked the committee Thursday. “What do we do with this program?”

Among the options he offered are to do nothing or “my preference would be to give it to the colleges to direct financial aid programs.”

Marcello didn’t find consensus among committee members. Rep. Karen MacBeth said she has two daughters in college and “$700 is a lot of money.” She said she would like to see more money going into student grants and that the 19,000 students getting grants “have a significant need to get that.”

Rep. Lisa Tomasso questioned how effectively and efficiently the state college programs are run and wanted an understanding of those programs if the funds were going to go there.

Taking a larger view, Rep. Teresa A. Tanzi looked at RIHEAA’s overall operations.

“If [we’re] dissolving an institution, we want to make sure the institutional knowledge goes forward,” she said.

In a letter to Marcello, RIHEAA acting director Gail Mance-Rios said the board and senior staff “have been meeting to develop a strategic plan for the agency.” She said the board is “determined to make the necessary changes that will improve and sustain the overall fiscal condition of the agency.”

The letter offers a chart of estimates, revenues and expenses from 2014 to 2018, showing operations generating incomes from $2.7 million this year to $518,125 in 2018.

It says discussions have started to consider outsourcing most of the loan servicing functions and scheduling meetings with labor representatives to discuss corresponding reductions in staff. The agency has the equivalent of 24 full-time state employees.

As for the student grant program, the letter says the RIHEAA board has begun evaluating the underlying formula to look at ways to redesign the program to target workforce skills gaps and motivate students to graduate are among other options. On the issue of the $21.9 million in reserves, the letter says the board is exploring the possibility of creating an endowment “to ensure the long-term use of the reserves for direct student financial aid.”

Marcello didn’t see a way for the agency to finance operations once the loan servicing revenues are gone without tapping into funds now going to students.

He said the projections provided in the letter, “divert money from the CollegeBoundfund, which normally would be going to students.”Mance-Rios said yesterday that RIHEAA has covered the administrative costs of the programs it operates through revenues from its guarantee functions.“RIHEAA has always underwritten the operational costs of the grant program and some of the CollegeBoundfund,” she said. Referring to the five-year plan provided the committee, she said, “We are accounting for all revenues and we’re not taking money from grant programs to support the agency.”

Marcello pushed for the committee to offer its ideas for a plan.

Rep. Patricia Serpa noted that according to its letter, RIHEAA is working on a plan.

“I want to see it by April 1,” she said. Her request was the basis of a motion the committee approved unanimously.

As for the reserves, the concept of an endowment resonated with Tanzi. Committee members also had concerns as to what might become of the funds.

“I would hate to see the reserves swept into another department,” said Marcello.

John Howell, the author of this story, is a member of the RIHEAA board of directors.