[Congressional Record Volume 141, Number 196 (Monday, December 11, 1995)]
[Extensions of Remarks]
[Page E2334]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      IN DEFENSE OF DIRECT LENDING

                                 ______


                           HON. BARNEY FRANK

                            of massachusetts

                    in the house of representatives

                       Monday, December 11, 1995

  Mr. FRANK of Massachusetts. Mr. Speaker, recently I was discussing 
Federal policy toward higher education with one of the most thoughtful 
students of that subject, Father Bartley MacPhaidin, C.S.C., who's 
president of Stonehill College in Easton, MA. I have long found Father 
MacPhaidin to be an important source of information on educational 
policy. I was particularly struck in our conversation by his forceful 
advocacy of the direct lending program, and of the benefits it provides 
for the students, whose financial well-being has always been very high 
on the list of Father MacPhaidin's concerns. He was so cogent and 
persuasive on the subject that I asked him to share with me in writing 
some of his thoughts because I believe that providing the best method 
by which young Americans can receive a college education is a very high 
priority for us and I think all of our colleagues will benefit 
substantially from reading Father MacPhaidin's knowledgeable and 
thoughtful discussion of the benefits of this program as he and his 
college have experienced them.

                      In Defense of Direct Lending

       Stonehill College was one of the 104 colleges chosen to 
     participate in the first year of the new direct lending 
     program for student loans. Today another 1500 institutions 
     are in the program across the country. Based on Stonehill's 
     experience of direct lending, the proposal in Congress 
     radically to curtail or terminate direct lending should be 
     resisted.
       In the new program, students and families deal directly and 
     solely with our financial aid office. No longer must 
     borrowers negotiate the often confusing, frustrating and 
     seemingly endless steps in the bank/school/guaranty agency 
     loops to obtain student loans. In direct lending, the College 
     determines eligibility originates loans, provides and 
     processes pormissory notes, requests and receives funds 
     directly from the government and credits student accounts. 
     Virtual one-stop-shopping.
       Recently, a junior came to the financial aid office seeking 
     funds to pay the rent on his off-campus apartment. The 
     financial aid office immediately originated a Direct Loan, 
     printed the promissory note on line, which the student 
     completed in the office. Within one week, the funds were in 
     the student's account and he received a check to pay his 
     rent.
       In the old program, the student would have gone to his 
     bank, obtained a form, completed the form and sent it back to 
     the bank, the bank would send it to the college for 
     certification, the college would send the certified form to 
     the guaranty agency, the guaranty agency would certify the 
     guarantee and notify the bank. The bank would then, finally, 
     cut the check and mail it to the college. The college would 
     notify the student, the student would come to the financial 
     aid office to co-sign the check which would then be deposited 
     to his account.
       Of course, he would probably have been evicted for non-
     payment of rent before this cumbersome process was completed.
       Direct Lending helps students manage their debt better, 
     enables them to borrow only as much as they need when they 
     need it. In the past, the cumbersome bank/guaranty agency 
     process has meant that students borrowed the maximum each 
     time to be sure they had the money they needed when they 
     needed it.
       The bank/guaranty agency loop has also meant alumni may 
     have confusion in the repayment cycle. Stonehill has an 
     alumna who called recently to resolve a potential default 
     status. She had borrowed each of her four years at Stonehill 
     from the same bank. But that bank had ``sold'' her loans to 
     three different servicing companies. She was finding it 
     nearly impossible to figure out which bank holds her loans 
     and how she could obtain payment deferments to attend 
     graduate school.
       All Direct Lending loans are ``bundled'' and handled by the 
     same servicer. While Stonehill's current student loan default 
     rate is only 2.5%, the new simpler system will prevent many 
     defaults, here and nationwide.
       There is controversy over whether Direct Lending is a 
     savings or a cost to the taxpayer, the difference arising in 
     large part from the use of different accounting principles. 
     The banking lobby is strong and speaks in deafening tones. 
     The only way to truly compare costs is to let the two systems 
     operate side by side for at least ten years, allowing each 
     school to choose the program which works best for it.
       Then, using agreed accounting procedures, the true costs to 
     taxpayers for each program can be assessed, the relative 
     default rates cmopared, and a rational decision made to keep 
     one or both programs. Stonehill urges the Congress to permit 
     such an experiment to take place, allowing market forces to 
     improve both programs while giving ample opportunity for fair 
     comparison. Students, families, and taxpayers can only gain.

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