[Congressional Record Volume 141, Number 200 (Friday, December 15, 1995)]
[Senate]
[Pages S18676-S18678]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             STUDENT LOANS

  Mr. COATS. Mr. President, I will not take nearly that much time. I 
thank my colleague and friend from Ohio, Senator DeWine, for his 
support throughout this effort. I will take a portion of that allotted 
time to explain what we are about and why we feel it is so important, 
at this particular time, to define the future for those students and 
parents who are anxiously wondering about what their opportunities will 
be to secure guaranteed loans for college expenses and university 
expenses in the future.
  As many who have followed this issue know, after weeks of 
negotiations, the Senate and House reconciled the differences between 
their two pieces of legislation regarding student loans, and came up 
with a savings figure of $4.9 billion. We had to do so because, in an 
effort to balance the budget, which is a noble effort which will 
hopefully come to a conclusion here in this next week, each committee 
was directed to achieve a certain amount of savings.
  The Labor and Human Resources Committee has a very limited impact in 
terms of the savings that it can contribute to this balanced budget 
effort and, in fact, had very little other choice other than to look at 
student loans. We were faced with somewhat of a dilemma. We know 
college costs are rising and tuition costs are rising. We know cutting 
back on the amount of loans available, or the repayment obligations of 
those loans, puts a serious crimp on families and students alike. So, 
what we were able to do is come up with our recommended savings, $4.9 
billion, without decreasing, without limiting, without imposing any new 
costs on students, on their families or on the schools. Not one student 
or one parent will pay 1 cent more for a student loan under the 
Republican reconciliation package, the balanced budget package, than 
they pay today.
  This debate has gone on for more than a year, but particularly this 
year. And, unfortunately, there is a tremendous amount of 
disinformation being spread by the administration that somehow students 
and parents are going to be adversely affected by these drastic cuts in 
education; that students will not be able to secure loans to pay for 
their future education.
  Demonstrations have been held during hearings. The hearing room is 
packed with students coming down. As we point out the facts to these 
students, they are almost in disbelief, because they have been told 
that the Republican balanced budget plan is going to drastically reduce 
their ability to secure student loans and drastically increase the 
repayment obligations on those loans.

  The fact of the matter is, not 1 cent of additional cost is being 
imposed on students. Mr. President, 70 percent of the $4.9 billion are 
costs that are imposed on the banks and guaranty agencies and secondary 
markets who participate in administering these loans: Taking the 
applications, determining who is eligible, providing the money, doing 
the repayment collection and so forth. Those are the agencies that will 
take a second, additional, substantial increase in the amount of 
expenditures that they will have to absorb without passing any of that 
on to the students or the parents who take out the loans.
  The 1993 Budget Act imposed a very substantial cost, several billion 
dollars of additional costs on these banks and agencies, and now we are 
adding an additional $4.9 billion. All of the rhetoric coming out of 
the Department of Education and coming out of the administration speaks 
to the opposite of what is happening. Because the balanced budget 
package actually affords students not only the ability to retain their 
existing benefits in the same form that they currently exist, but 
creates new benefits by ensuring that the two student loan programs, 
the guaranteed loan program and the direct lending program, will offer 
the same benefits to students. For example, until now, students 
receiving loans through the direct lending program were given the 
option of an income-contingent repayment. That is, their repayments 
were based on their ability to repay--income-contingent. Under the 
package that is now presented to us, this same option will be extended 
to students in the guaranteed loan program as well as the direct 
lending program.
  Furthermore, students, their families, and colleges were protected 
from a precipitous move to an unproven program by capping the direct 
lending program at 10 percent of total loan volume. The administration 
has opposed this cap because the President and Department of Education 
have been committed for some time to a very dramatic extension, an 
expansion of this program, the direct lending program, and were not 
willing to take some time and set aside a demonstration to see whether 
or not it would be in the better interests of the students and colleges 
and actually provide the savings they claim.
  Initially, the savings claimed started out somewhere close to $12-
plus billion. That was revised to $6 billion. Then we finally got an 
estimate back from the Congressional Budget Office saying that, no, it 
not only would not save money for the Government, it would actually 
cost money because of a number of factors including administrative 
costs at the Department of Education.
  A point we are trying to deal with here is that if we were to adopt 
and accept the President's proposals to continually raise the cap and 
eventually get, I think, to a program that only administered student 
loans through the direct lending program, we are likely to see the 
termination of the competing program, the guaranteed loan program, 
because these agencies cannot continue to absorb increased 
administrative costs while their market for distributing loans 
continues to shrink, as more shift over into the direct loan program. 
So the conferees thought that what we ought to do is double the current 
size of the direct lending program from 5 to 10 percent, put a cap on 
that 10 percent, test it as a demonstration program to see how we could 
administer it efficiently and effectively to see whether or not it 
lived up to the claims that were made for it, and then make a final 
decision on what the best way to offer student loans to students would 
be.

  The Clinton plan began by removing any participation target for 
direct lending, effectively allowing, as I said, direct lending to go 
to 100 percent, as the administration has been pushing as recently as 5 
months ago in legislation that it sent to the Congress. At the same 
time, the administration was imposing virtually all of the subsidy 
reductions on the guaranteed loan program, the other program, added to, 
as I said, increases in costs that were imposed in 1993. Taken 
together, these subsidy reductions along with the open-ended level of 
the direct loan program, in my opinion and in the opinions of many, 
would have effectively ended the guaranteed loan program and 
effectively denied and taken away the choice for the vast majority of 
the Nation's schools and students.
  Again, let me state the facts. Even though we are putting together a 
plan to balance the budget in 7 years, the decision was made that we 
will not achieve savings by imposing on students or their parents or 
the schools or universities any additional costs. That ought to be good 
news for every college, every university, and every student and young 
person in this country. Despite that, we continue to hear and read the 
rhetoric coming out of the administration that we are denying 
opportunities to students and imposing higher costs on them. That is 
simply not true.
  Make no mistake, there is a real higher education debate going on. 
But 

[[Page S18677]]
the debate is not whether we will provide loan assistance to students 
going to school. The debate is how we will provide that assistance. It 
is not a debate about student cuts or school fees, it is a debate about 
where the funds for loans will originate and who will handle that, 
administer the loans once they are made. The difference really comes 
down to whether or not you believe that a Government-run program will 
be more cost efficient and more effective than a private sector-run 
program. That point was made very well in the Washington Post op-ed 
article 2 weeks ago.
  Two economists at the CRS, Dennis Zimmerman and Barbara Miles, wrote 
an article explaining that the debate between the direct lending and 
the guaranteed loan program is fundamentally a debate over political 
philosophy and not a debate over economics. I have a quote from what 
they wrote on this chart:

       There are no inherent cost advantages in direct lending as 
     opposed to guaranteed lending. Regardless of how the loans 
     are made, rules of the program dictate that the same number 
     of loans will be made to the same students for the same 
     purposes, and with the same interest rates and repayment 
     terms. The idea that direct lending would somehow produce 
     multibillion-dollar savings was attributable to . . . [and I 
     think they generously said] misunderstanding.
       The choice between the two boils down to political 
     philosophy, not economics.

  It is important to keep in mind that these economists at the 
Congressional Research Service are not individuals who work for the 
Republican Party, nor are they individuals who have some hidden agenda, 
who have some connection to the banks or the guaranty agencies. They 
are simply economists who work for the Congressional Research Service 
and provide us with objective, nonpartisan analyses of the programs 
that Congress develops.
  As many know, I have been a vocal opponent of the direct lending 
program since its inception. To put it simply, I simply do not believe 
that the Federal Government is able to better manage a program than the 
private sector at a time when we are looking to privatize many 
Government services because we are discovering--whether it is in small 
town America, whether it is in our States, or whether it is at the 
Federal level--that the private sector does the job more efficiently 
and cost effectively than Government. At a time when we are attempting 
to privatize and find the savings in Government, along comes the 
administration saying, ``Let us create a brand new program to be 
administered by a Government agency, Government bureaucracy, and let us 
take away a function that is being performed by the private sector and 
transfer it to Government.''
  I think anybody who has studied, or looked at, or even instinctively 
understands that Government programs do not operate as efficiently or 
effectively as the private sector, has to seriously question the 
decision of the administration to begin to administer an entirely new 
program at the Department of Education.
  In my opinion, and on the basis of my analysis of Government programs 
and the thousands of requests, complaints, and inquiries that come into 
my Senate office here in Washington, or my Senate or regional offices 
in Indiana, complaints about the ineptness, the mismanagement, the 
bureaucracy, and the delays of administering Federal programs, I simply 
cannot endorse a program that would add yet another function to the 
Federal Government.
  I believe that quality of service would seriously decline. I believe 
that the default rate would skyrocket. I think that making a Federal 
agency the responsible agent to ensure that the loans are repaid is not 
going to begin to give us the accountability that we achieve through 
the private sector.
  One of my greatest concerns is program management. The direct lending 
program will centralize control at the Department of Education. The new 
Federal bureaucracy needed to oversee direct lending is already growing 
and having predictable results. We started with a 5-percent test, and 
already we are considerably more than that. Some of the results are in.

  The Department has had to hire 400 new people to administer the 
program and has plans to hire some 700 more by the time the program is 
fully operational.
  Yet, a recent issue of Forbes magazine reported that the Department 
is already having problems managing the $700 million that it disbursed 
in 1994 through direct loans. In the first year of that program, when 
the Department was only responsible for 5 percent of total loan volume, 
they somehow lost track of almost 15 percent of the loans disbursed.
  The program mismanagement becomes an even greater concern with the 
possibility that direct lending could become the only student loan 
program.
  As I mentioned earlier, despite their newfound love for program 
choice, the President and the Department of Education have made it very 
clear that they want ultimately to end up with 100 percent direct 
lending. And, in this environment, the Department of Education would 
then become the third largest bank in the country requiring a vast new 
Government bureaucracy to handle details like customer assistance and 
loan checks.
  This is the same Department that, after 16 years of operation and 
$342 billion of taxpayer money, has failed to improve the quality of 
education in this country. Do we want this institution to have a 
monopoly on student loans?
  Concern over this program management and whether this is a proper 
expansion of Federal Government is shared by four former Secretaries of 
Education. Former Secretaries Bennett, Cavazos, Alexander, and 
Hufstedler, President Carter's first Secretary of Education, wrote a 
letter to Senator Dole opposing direct loans on the grounds that the 
Department of Education simply cannot manage this program.
  I have put on this chart--it may be difficult to see--a copy of this 
letter to Senator Dole from the three former Secretaries of Education, 
Lamar Alexander, Lauro Cavazos and William Bennett, and I will read 
only a portion of it.

       The effort to rapidly federalize the administration of the 
     massive student loan program is ill-conceived and presents 
     substantial risk to the financial lifeline for millions of 
     this Nation's college students and families.

  They further wrote that at a time when the Clinton administration has 
advocated public-private partnerships and deregulation to improve 
American competitiveness, the nationalization of the student loan 
program directly conflicts with those objectives.
  Such strong bipartisan opposition to direct lending clearly sends a 
signal that we need to at the most test this program before allowing it 
unrestricted and unfettered growth, as the President proposed in his 
balanced budget plan.
  The report that the conference between the House and the Senate gave 
back to us said they believed it was appropriate to cap this program at 
a 10-percent rate--10 percent of the total loan volume--and test it to 
see whether or not our concerns were real concerns.
  I believe that a 10-percent cap would allow for a reasonable 
demonstration to occur. We can then take the results and make further 
decisions as to what we ought to do.
  We ought to heed the words of those former Secretaries of Education 
from both parties who caution that rapid federalization of student 
loans as currently being undertaken by the administration presents 
substantial risk to the financial lifeline for millions of this 
Nation's college students and families.

  I urge my colleagues to save student loans and to support the 
balanced budget provision which was supported by the Senate.
  We are entering now into a period of time over the next several days 
when some very fundamental decisions will have to be made in terms of 
getting to a balanced budget in a 7-year period of time with honest 
numbers, without fudging the numbers or cooking the books or making 
false assumptions.
  We owe it to the future of this country, we owe it to our children 
and grandchildren, and we owe it to those young people who ought to 
have the kind of opportunities that we have enjoyed.
  This is just one piece of the puzzle. It is an important piece. It is 
a $4.9 billion piece. But it could result in a program which, if left 
unfettered, left uncapped and not tested first, could begin 

[[Page S18678]]
to push us down that road which we have been traveling for the last 
several decades of open-ended programs with entitlements to individuals 
and no ability of Congress to check it.
  We have a program now that works. We have substantially improved that 
program in the private sector. We have imposed costs and fees on the 
banks, guarantors, and lenders that have helped us in our budget 
savings without imposing additional restrictions on students.
  Frankly, it is a pretty good deal for America, to be able, when you 
send your children to school, to borrow funds at no interest, use those 
funds to pay college costs, and then have an extended repayment period 
after graduation where you are not even paying interest on the use of 
the funds for the entire time that you are in school, plus in a 6-month 
period of time after graduation from school.
  Now, I do not know if there are many better deals in America. If 
there are, I would like to know about them.
  And so I think we ought to deal with the facts and not the political 
rhetoric. We ought to recognize that we have in place an 
extraordinarily generous program to help parents who need the help and 
students who need the help in providing funds to pay for their college 
costs.
  A program which allows you to borrow at zero interest for your entire 
time in school and then gives you a generous 10-year or more repayment 
program where the interest does not even begin to run on the amount 
that you have borrowed until 6 months after you have graduated, give 
you time to go out and look for employment so that you can begin to pay 
back these loans, is a pretty generous program. At a time when we are 
facing a substantial budget crisis, are attempting to bring fiscal 
responsibility to the Federal Government, at this historic moment when 
we hope to finally once and for all balance the budget, this is more 
than a reasonable proposition.
  So I hope that the conferees in deciding what the final composition 
of the Balanced Budget Act will look like and in negotiating with the 
President understand what the House and Senate have come up with in 
terms of the student loan program is more than reasonable, does not 
impose additional costs on students, does not reduce the amount of 
loans available to those students, and simply is the way we ought to 
proceed.
  Mr. President, I thank you for the time. Whatever time I have 
remaining I yield back.
  Mr. EXON addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska is recognized for up 
to 5 minutes.
  Mr. EXON. An inquiry of the Chair. I assume we are in morning 
business. Is that correct?
  The PRESIDING OFFICER. That is correct.
  Mr. EXON. I thank the Chair.

                          ____________________