[Congressional Record Volume 141, Number 55 (Friday, March 24, 1995)]
[Extensions of Remarks]
[Pages E684-E685]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                           DIRECT LOANS WORK

                                 ______


                         HON. ROBERT E. ANDREWS

                             of new jersey

                    in the house of representatives

                        Thursday, March 23, 1995
  Mr. ANDREWS. Mr. Speaker, the March 13, 1995, issue of U.S. News & 
World Report includes an excellent article entitled, ``The College Aid 
Face-Off.'' The article reports on the current debate in Congress on 
the future of the direct loan program as well as on major cuts in the 
student financial aid programs. With respect to direct loans the 
conclusions of the article are striking--direct loans work. Direct 
loans are simpler, faster and more efficient for student borrowers, 
student financial aid administrators and schools. In addition, direct 
loans save the taxpayers money. Opposition to direct loans comes from 
banks and other student loan middlemen who fear the loss of billions of 
dollars of profits and whose lobbying efforts are fueled by at least 
$11.3 million in campaign contributions. The full text of the article 
follows, and I commend it to my colleagues.
           [From the U.S. News & World Report, Mar. 13, 1995]

                        The College Aid Face-Off

     (Clinton fights the GOP and bankers over what students get 
     and who runs the loan business)

         (By James Popkin and Viva Hardigg with Susan Headden)

       Believe it or not, there is a group of Americans who truly 
     delight in one of the things Bill Clinton has accomplished as 
     president, who think that a government-run program that 
     handles gobs of money is preferable to one run by the private 
     sector and think that the paperwork created by public 
     bureaucrats is easier to navigate than the forms devised by 
     well-run corporations. They are the thousands of college 
     students who got their loans last fall directly from the 
     government instead of from banks. The verdict from Anthony 
     Gallegos, a 22-year-old journalism major at Colorado State 
     University: ``It's the best thing since microwavable 
     brownies.''
       But all is not entirely happy in loan land. Even though 
     many students at 104 schools say they got their money with 
     fewer hassles in a fraction of the time it usually takes and 
     taxpayers might benefit because banks and middlemen didn't 
     collect subsidies to make the loans, the direct-lending 
     program is now the object of a bitter new battle in 
     Washington. In fact, every major federal college aid program 
     is considered a target in one form or another by the new 
     Republican majority in Congress. The disputes have all the 
     hallmarks of postmodern politics: None really centers on 
     principle; almost everyone in Washington believes the 
     government
      has a useful and morally defensible role to play in helping 
     more kids get into college and pay for it. The fight so 
     far centers on the spoils system--whether the public or 
     private sector administers the program--and arcane federal 
     budget accounting questions.


                           Millions affected

       Those are not inconsequential issues, because billions of 
     dollars of profits (for banks) or potential savings (for 
     taxpayers) are at issue. But the bigger fight will come as 
     Congress deals with the budget. It will feature the first 
     serious talk of major cuts in college loans and grants since 
     the early days of the Reagan administration. ``What is at 
     stake is nothing less than access to higher education for 
     millions of middle- and lower-income students at a time when 
     public-college tuition is rising sharply,'' says Terry 
     Hartle, a vice president of the American Council on 
     Education. The biggest dispute could center on a plan 
     circulating among Republicans to cut loan subsidies to needy 
     students during their time in school--a move that might save 
     $9 billion over five years and could hit 6 million students 
     with higher debt and payments.
       This sets up a political showdown that Clinton is unusually 
     pleased to face. He has called for increasing federal funds 
     for college aid by 10 percent to $35.8 billion as part of his 
     middle-class ``Bill of Rights,'' including expansion of many 
     of the programs Republicans are eyening for cutbacks. Clinton 
     won major reforms in federal college aid initiatives in 1993 
     as part of his national service program, which he heralds as 
     a cornerstone of his ``New Covenant'' to provide government 
     help to those who help themselves. Asked if Clinton is 
     willing to renegotiate any feature of the national service or 
     college aid programs, one senior White House aide responded: 
     ``My guess is his answer is between `No' and `Hell, no.''' 
     ``A probable Clinton veto of any cuts in college aid means 
     that these programs will survive intact for now, but there is 
     still a good chance that his plans to expand them could be 
     held up.
       In coming weeks, the direct-lending program will grab the 
     most attention. One of the reforms enacted in national
      service was the gradual phase-in of a system that would have 
     the federal Government lend money to students directly 
     rather than provide financial incentives and guarantees to 
     coax banks into making the loans. Even though new workers 
     will have to be hired by the Department of Education to 
     run the program, it still saves considerable sums. That's 
     why Clinton wants to accelerate its availability to all 
     the nation's 7,000 eligible schools. But bankers and other 
     firms that trade student loans for investors have 
     aggressively battled the loss of this lucrative line of 
     business and heatedly dispute Clinton's claim that the 
     program saves money.
       Their lobbying fueled by at least $11.3 million in campaign 
     contributions, has helped encourage Republican congressional 
     leaders Rep. William Goodling of Pennsylvania and Sen. Nancy 
     Kassebaum of Kansas to push legislation that would limit the 
     expansion of the program to 10 percent of all student loans. 
     Some moderate Democrats like Rep. Bart Gordon of Tennessee 
     also support the move on the theory that the new lending 
     program should be tested before it becomes the norm for all 
     colleges. House Speaker Newt Gingrich wants to kill the 
     program. He argues that Clinton's reforms vest too much power 
     in the Government, especially because the lending program is 
     run by the Department of Education, which has allowed fraud 
     to flourish in aid programs for decades.
       However, the first reports about direct lending are very 
     positive. Students and college-based loan officers say funds 
     are available to students in weeks rather than months. The 
     paperwork is simpler, and college officials have to deal with 
     only one federal office rather than many banks. ``Being in 
     direct loans has been almost a spiritual experience,'' says 
     Kay Jacks, director of financial aid at Colorado State 
     University. ``It 
     [[Page E685]] helps us provide better service to students, 
     period,'' Karen Fooks, the financial aid director at the 
     University of Florida, says her whole office threatened to 
     quit if it was ordered to return to the bank system from 
     direct lending.
                             Pay as you can

       But bankers argue that doling out money is the easy part. 
     Collecting it is something the government hasn't done very 
     well. Many new loans will be on a ``pay as you can'' basis 
     letting borrowers pay back a portion of their earnings over 
     many years, rather than a fixed monthly payment. 
     Administrating that will tax even the most efficient agency.
       That is why one thoughtful critic, author Steven Waldman, 
     has argued that this upcoming struggle misses the main point. 
     Waldman, who wrote the recently released book, The Bill, 
     about the legislative battle over national service, believes 
     Clinton has achieved an enormously beneficial reform in the 
     ``pay as you can'' scheme. It relieves some of the financial 
     pressure on borrowers and potentially encourages them to 
     choose socially useful--but less-high-paying--careers like 
     teaching because their loans are pegged to their ability to 
     pay. But Waldman argues that Clinton's achievement is 
     jeopardized because neither banks nor the federal education 
     bureaucracy can prevent the program from becoming another 
     boondoggle. His solution: Call in the IRS, the only agency 
     that ``could accurately and efficiently assess a person's 
     income and be sure to collect.''
       An idea like that puts tough-minded Republicans in a bind. 
     If they want to fix a potentially flawed Clinton idea and do 
     right by taxpayers, their best bet is to vest more power in a 
     much-feared federal agency. Who knows, maybe the students who 
     have newfound appreciation for the easier-to-fathom lending 
     system run by the government might not balk too much at 
     paying when the bills come due.
     

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