[Congressional Record Volume 141, Number 162 (Thursday, October 19, 1995)]
[Senate]
[Pages S15366-S15367]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  SPECIAL INTERESTS HIT STUDENT LOANS

 Mr. SIMON. Mr. President, Roger Flaherty, now an editor at the 
Chicago Sun-Times, has followed the Federal student loan program for a 
number of years. I would urge my colleagues to consider what he has to 
say about the role of special interests in the current budget debate.
  I ask that an article that appeared in the Chicago Sun-Times on 
September 27, 1995, be printed in the Record.
  The article follows:

              [From the Chicago Sun-Times, Sept. 27, 1995]

           Special Interests Hit Direct Loan Program Head-on

                          (By Roger Flaherty)

       When I was younger, I walked side by side one day with 
     Wilbur Mills, the Arkansas Democrat then always described as 
     ``chairman of the powerful House Ways and Means Committee,'' 
     asking about tax reform. In a moment of candor, he said, ``If 
     you want to reform the tax system, you've got to end all 
     deductions.''
       Why not do it? I asked. Mills responded with a dismissive 
     look--sort of sneer and condescension--and turned to another 
     reporter. So I learned that Washington people don't do as 
     they think or say. We should keep that in mind as the 
     Congress plows into a fall agenda that promises more moves to 
     ``get government off our backs.''
       Like tax deductions, government-run programs are bad until 
     they are good for you or your friends. You usually hear this 
     truism about defense contracts and farm subsidies.
       But there's one I've observed closely in recent years--the 
     student loan program. Several years ago, along with Sun-Times 
     reporter Leon Pitt, I uncovered enormous abuses by for-profit 
     trade schools that were using student loans like government 
     vouchers they could squander any way they chose. They 
     enrolled students into programs they were unable to complete 
     or that were so poor in quality as to be useless. When 
     students dropped out, within hours sometimes, the schools 
     kept the loan money in violation of the law. The United 
     States was being defrauded of billions of dollars.
       But when reformers tried to tighten loan rules, school 
     industry lobbyists fought them, arguing the reforms were an 
     assault on free enterprise. It was a strange argument, 
     considering that these schools generally received more than 
     90 percent of their income from government loans and grants.
       Well, that odd assertion is again being made in Congress, 
     where conservative Republicans under the guise of getting 
     government off our backs are attacking the direct student 
     loan program. The program, which is scheduled to be phased in 
     over several years, operates successfully at several Illinois 
     institutions, including the University of Illinois. The 
     program allows loans to be made directly from the federal 
     treasury through college financial aid offices.
       This is bad, congressional opponents say, because it 
     furthers big government and hurts 

[[Page S 15367]]
     business. How ingenuous can you get? Under the old loan system still 
     being used by most schools, a student applies to a bank for a 
     loan. Checking his or her qualifications is a loan guarantee 
     agency, commonly run by state governments, but also by 
     private enterprise. The agencies then issue a guarantee of 
     repayment to the banks. The federal government pays banks 
     subsidies to forgive part of the interest payments and pays 
     fees to the guarantee agencies for their services.
       If a student defaults on a loan, the bank is reimbursed--
     making student loans the safest loans a bank can make. Loan 
     guarantee agencies are paid fees to hound defaulters. Is this 
     not big government? Can this be free enterprise?
       There's more. The old system created a secondary loan 
     business, including the huge public-private Sallie Mae 
     association based in Washington, and smaller ones, like one 
     operated by the Illinois Student Assistance Commission. These 
     groups make money by buying loans from banks and packaging 
     them in large blocks for resale. They were created by 
     Congress and the states to free money for more student loans, 
     but as was said of some missionaries to Hawaii, Sallie Mae 
     and its emulators came to do good and ended up doing well. 
     They are big businesses with highly paid executives.
       The direct loan program, a plan advanced by Sen. Paul Simon 
     (D-Makanda), eliminated this entire pyramid. No government 
     subsidy or risk-free lending for banks, no government 
     payments to loan-guarantee agencies, no Sallie Maes with 
     executives paid from profits extracted from government loan 
     subsidies.
       But odds are increasing that Congress this fall will stop 
     the direct loan program in its tracks, led by the same people 
     who claim they are trying to get government off our backs. 
     And so far, it seems to be going down like a cold, sweet Coke 
     on a hot summer's day.

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