Opinion Number ( 1995 )

Dear Mr. Guinn:

Reference is made to your recent request for the opinion of this office regarding the operation of the Office of Student Financial Assistance ("OSFA") as an escrow agent on behalf of lenders and student-borrowers participating in the federal guaranteed student loan program. Specifically, you have requested our opinion as to whether the funds received by OSFA as escrow agent should be treated as state funds which would require the funds to be deposited in the State Treasury in accordance with La. Const. ArtVII, Sec. 9.

In accordance with your advice, it is our understanding that OSFA will receive the funds in question in its capacity as an escrow agent on behalf of lenders and student borrowers in accordance with the authority granted to OSFA, a "guaranty agency", by34 C.F.R. Section 682.408. We also note that in accordance with La. R.S. 17:3023(A), the Louisiana Student Financial Assistance Commission (the governing body of OFSA) is given the authority to:

(3). . .hold and administer, on behalf of the commission and for any of its purposes, . . .moneys. . . either absolutely or in trust, for any purpose of the commission.

* * *

(9). . . Perform such other acts as may be necessary or appropriate to carry out effectively the objects and purposes of the commission." (emphasis supplied).

It is the opinion of this office that, moneys held by OSFA, on behalf of lenders and student borrowers in its capacity as an escrow agent in accordance with the authority granted by34 C.F.R. Section 682.408, do not have to be deposited in the State Treasury. Such funds are not state funds, as they belong to lenders and student borrowers.

We note, however, that 34 C.F.R. Section 682.408 authorizes escrow agents to invest loan proceeds and "retain for its own use interest and other earnings" on those investments. To the extent that OSFA retains any such interest and/or earnings, such interest and/or earnings are state funds and should "be deposited immediately upon receipt in the state treasury" in accordance with La. Const. Art. VII, Sec. 9.

We trust this correspondence adequately addresses your concerns. Please do not hesitate to contact us if we can be of further assistance.

Yours very truly,

RICHARD P. IEYOUB Attorney General

BY: _____________________________________ JEANNE-MARIE ZERINGUE BARHAM Assistant Attorney General

RPI:JMZB:jv

cc: Gary Hall

Mr. Jack L. Guinn Executive Director Office of Student Financial Assistance P.O. Box 91202 Baton Rouge, Louisiana 70821-9202

DATE RECEIVED: NOV. 21, 1994

DATE RELEASED:

JEANNE-MARIE ZERINGUE BARHAM, ASSISTANT ATTORNEY GENERAL