[Congressional Record Volume 141, Number 19 (Tuesday, January 31, 1995)]
[Senate]
[Pages S1845-S1846]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                       FEDERAL EDUCATION SPENDING

  Mr. PELL. Mr. President, I am deeply concerned with the rumors and 
talk about town regarding cuts in Federal education spending. While the 
Federal contribution constitutes only about 6 cents of every $1 spent 
in education in our country, it is a very concentrated and highly 
important amount of money. At the postsecondary level, it makes up 75 
percent of all the grants, loans, and campus-based aid that enable 
deserving students to pursue a college education. In elementary and 
secondary education, it comprises over 60 percent of all the funds that 
go to help disadvantaged students learn on a level with their peers. To 
my mind, we should not be looking at cuts in education but, instead, 
should be examining how we might increase and strengthen the Federal 
contribution.
  One of the education cutbacks receiving greatest attention is the 
potential elimination of the in-school interest exemption for students 
who obtain Federal loans to help finance their college education. 
Elimination of this exemption would increase student indebtedness by 20 
to 50 percent. It would only worsen an already unfortunate trend in 
which students and their families are having to borrow more and more 
money. It would be the wrong step in the wrong direction at the wrong 
time.
  Mr. President, as I have stated on many occasions, few things in life 
are more important than the education of our children. They are the 
living legacy that we leave behind and their education determines the 
future of the American Nation.
  As part of the possible proposed spending cuts, it has been suggested 
that the in-school interest subsidy feature of the Federal student loan 
program be eliminated. This term subsidy is somewhat of a misnomer. 
What the phrase actually refers to is the in-school interest exemption 
feature of the loan program. This is a critically important feature of 
the loan program that shows the Federal commitment of providing help to 
hard-pressed middle income families. Its elimination, however, is one 
of the possible funding cuts in education that could be made to help 
pay for the Contract With America supported by the majority party in 
the U.S. House of Representatives. Because of this, I thought it very 
important not only to let my colleagues know of my strong opposition to 
such a proposal but also to let them know the terrible impact it would 
have on students who must borrow in order to pay for their college 
education.
  In a recent letter I received, a director of financial aid at an 
institution in California expressed great concern over this proposed 
cut. He noted that eliminating the interest exemption feature will 
compound the already high debt levels of students.
  Under the proposed cut, student loan indebtedness will increase from 
around 17 to 30 percent for the average undergraduate and graduate 
student. Elimination of the interest exemption feature will also hinder 
the students' ability to compete and participate in the economic 
marketplace if they are forced to begin their careers with such 
increased debt. The end result could well be an economy where college 
graduates cannot purchase homes or other necessities that are the 
economic stimulus of our society.
  These harsh consequences would especially affect students from 
middle-class families, those same students for whom the loan program 
was originally designed. The ability to obtain and repay a loan is a 
major issue confronting college students. Increasing the amount they 
will owe when they finish school will most certainly affect students' 
decisions whether or not to attend college in the first place or go on 
to graduate school after undergraduate study is completed. Without the 
in- 
[[Page S1846]] school interest exemption, it is estimated that students 
who are enrolled for bachelors degrees could see their debt burden 
increase by $20,000 or more.
  For example a student that attends a 4-year college and borrows the 
maximum amount would owe $17,125. If interest is charged while the 
student is in school, the student would owe an additional $3,407 or 
$20,532 upon entering repayment. This 20-percent increase in the amount 
to be repaid would increase the monthly payment from $205 per month to 
$246 per month. The additional cost over the life of the loan would be 
about $5,000.
  This proposal is truly penny-wise and pound-foolish. Students who 
today pursue graduate study would have an enormous increase in what 
they owe. Those same students have the lowest
 default rate in the loan program. Increasing their debt burden, 
however, will certainly increase the risk of default.

  The effects on graduate students are even more profound for a student 
who attends 4 years while earning a bachelor's degree and attends 
graduate school for an additional 2 years to earn a masters degree. 
Upon graduation, the student would owe $34,125. If the interest 
exemption is eliminated, the student would owe an additional $9,167 for 
a total of $43,292. This represents a 27-percent increase in 
educational indebtedness and would increase the monthly repayment 
amount from $409 to $520 per month.
  Every day families are making decisions about sending their children 
to college. Certainly one of, if not the major obstacle they face is 
how to pay for college. The loan is their last resort. It provides the 
extra but necessary money they must have after exhausting their own 
resources and obtaining any grants for which their children might be 
eligible. Increasing the amount their children owe after graduation may 
well place the dream of a college education beyond their reach. That, 
to my mind, would be a tragedy of truly immense proportions. In fact, 
recent studies show that the people who are the most uneasy about 
borrowing funds are those with low incomes. But these are the same low 
income students who will turn away from taking the loan because of the 
monetary increase. Without the funds, an education becomes an 
unachievable dream.
  The proposal to eliminate the in-school interest exemption also comes 
at a particularly bad time. The cost of a college education continues 
to escalate at all levels, but particularly in the public sector where 
a previously affordable education is in danger. State after State has 
trimmed support for its public institutions. The result: Students and 
their families have had to pay more through higher tuitions and other 
related costs.
  The need to borrow to pay for a college education is already 
increasing at an alarming rate. According to a recent study by the 
American Council on Education, the volume in the Stafford Loan Program 
increased by 45 percent last year, and the average loan size grew by 
nearly 20 percent. The study also found that the increase in borrowing 
over the past year was far greater than any previous year's increase.
  Unfortunately, borrowing is more necessary because we have failed to 
provide sufficient funding for our grant programs in general and the 
Pell Grant Program in particular. When we reauthorized the Higher 
Education Act 3 years ago, we sought to extend Pell grant aid to middle 
income families, but the sad fact is that funding has been inadequate 
to accomplish that objective. The consequence has been that more and 
more American families have been forced to borrow more and more money 
to pay for a college education. Elimination of the in-school interest 
exemption will only exacerbate an already worsening situation.
  For example, at the University of Rhode Island in my home State, 
borrowing increased from $8.2 million in 1988-89 to over $26.7 million 
in 1994-95. For the current school year alone, cutting the in-school 
interest exemption would add another $2 million in debt burden. That is 
not the direction in which we should be moving.
  Mr. President, I care deeply about the education of our children. If 
the in-school interest exemption is eliminated, we will be removing an 
essential and very helpful feature of the federal loan program. I urge 
my colleagues to talk with college officials in their respective States 
and to learn just how devastating elimination of the in-school interest 
provision would be not only to their schools but particularly to their 
students. I also urge my colleagues to join me in expressing early and 
strong opposition to such a proposal so that it might be removed from 
any and all lists of education cuts under consideration.
  Mr. HATCH. Mr. President, as in executive session, I ask unanimous 
consent that nominations to the offices of inspector general, excepting 
the Office of Inspector General for the Central Intelligence Agency, be 
referred during the 104th Congress in each case to the committee having 
substantive jurisdiction over the department, agencys or entity, and if 
and when reported in each case, then to the Committee on Governmental 
Affairs for not to exceed 20 days.
  The PRESIDING OFFICER (Mr. Grams). Without objection, it is so 
ordered.


                          ____________________