The bank settlement announced Thursday will bring the added bonus of extra money for higher education in Missouri, helping ease the sting of funding cuts for public colleges and universities.

State officials estimate that struggling homeowners will get help to the tune of $155 million, with the bulk going to those who are "underwater" on mortgages. But officials also plan to use $40 million of their share to ease proposed higher education cuts.

Officials in Illinois touted the estimated benefit to their state — $1 billion — but said the money would all go to mortgage-related programs, with no plans to use a portion for budget help.

"The dimension of the disaster created by the mortgage industry would quickly eat up that money," said Steve Brown, spokesman for Illinois House Speaker Michael Madigan, D-Chicago. "The notion that we might be able to set some of it aside (for other purposes), I'm not hearing that."

But in Missouri, Attorney General Chris Koster said he and counterparts across the country had discretion over how to spend some of the money directed to their states.

Koster "clearly wanted to keep the state portion of it as flexible as possible," said Linda Luebbering, budget director for Gov. Jay Nixon. "He made sure, as part of the agreement, that it would be like general revenue," available for any program.

Nixon had previously proposed $106 million in cuts to four-year and two-year public colleges and universities.

If the Legislature accepts Nixon's plan to use money from the bank settlement, colleges and universities would see a 7.8 percent cut in their state funding instead of 12.5 percent. For example, the windfall would restore $18.78 million to the University of Missouri and $452,481 to Harris-Stowe State University in St. Louis.

The Missouri House Budget Committee chairman, Rep. Ryan Silvey, said he supported Nixon's proposal.

"I'm glad the governor is finally starting to listen to legislators and the people of this state who make education a priority," Silvey said.

Nixon said he hoped colleges and universities could hold tuition increases to the inflation rate. He noted that state law requires them to get waivers from the Department of Higher Education if they want to exceed that cap, which will be set at 3 percent for the coming year.

Campuses were still digesting the news Thursday, but several schools expressed optimism that tuition increases, while still inevitable, would be less severe.

Missouri State University interim President Clif Smart was on his way to Jefferson City for a Thursday afternoon meeting with the governor. Like other campus chiefs, he was happy with the news but noted that schools still are looking at a steep higher education cut that will have to be offset by some sort of tuition boost.

"It's still a significant chunk of money for us," Smart said.

At Southeast Missouri State University, President Kenneth Dobbins said in a statement that a reduced cut would allow the school to avoid an increase that would exceed 3 percent.

A spokeswoman for the four-campus University of Missouri system, which is now looking at a 6.5 percent increase in tuition and fees, said administrators are evaluating the changing landscape and its impact on the size of an increase.

Illinois' plans

Illinois is expecting more than $1 billion in payments and services for the state's homeowners under the settlement, according to Attorney General Lisa Madigan. Most of that amount will flow directly from the banks to qualified homeowners, according to Madigan's office.

The settlement will be administered primarily through the attorney general's office and the Illinois Department of Financial and Professional Regulation.

The settlement includes $1 million for the IDFPR to continue its ongoing investigative and enforcement work regarding home mortgages.

"Over the past years, we've seen how the flawed mortgage financial system has hurt Illinois families," Illinois Gov. Pat Quinn said in a prepared statement. "This settlement will help those most affected by the housing crisis, and will establish new rules for mortgage lending that will be easier to understand and enforce."

Lisa Madigan's office said Thursday there were no figures available on how many Illinois homeowners or former homeowners might be affected.

Her office outlined other action that will be taken under the settlement:

• Struggling borrowers will be considered for a loan modification rather than automatically face foreclosure.

• No loan will be referred to foreclosure while a modification is being considered.

• Borrowers will be able to appeal if they are denied a loan modification.

• Mortgage servicers have to provide a point of contact for borrowers and make it easier for them to check on the progress of their loan modification applications.

• Servicers will have to meet strict timelines for dealing with borrowers.

Jake Wagman and Tim Barker of the Post-Dispatch contributed to this report.