[Congressional Record Volume 141, Number 200 (Friday, December 15, 1995)]
[Senate]
[Pages S18690-S18691]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         STUDENT DIRECT LENDING

  Mr. SIMON. Mr. President, I understand that two of my colleagues 
spoke in opposition to direct lending this morning on the floor of the 
Senate. I will respond to what I had been told by my staff was said on 
the floor.
  First, just by way of background, let me just say there are 1,350 
colleges and universities that now have direct lending. I do not have 
the list in front of me, and I cannot tell you, Mr. President, what 
schools in Wyoming are using direct lending. I know that in every State 
outside of Alaska there are schools using direct lending. It is 
interesting that not a single college or university that has direct 
lending wants to go back to the old system. We just received a report 
from the Colorado State auditor saying that the University of Colorado 
is saving $192,000 a year under direct lending in bookkeeping and other 
personnel costs.
  Let me respond to the specific charges or statements. It said under 
the plan that the President vetoed, all students could get flexible 
repayment. Under direct lending if you want to, you can have income-
contingent repayment, that a percentage of your income can be set aside 
for repaying a loan. That was not the case under the old program. The 
actual language of the bill is, Mr. President, that a lender ``may,'' 
at the discretion of the lender, offer the borrower the option of 
repaying the loan in accordance with an income-contingent repayment 
schedule. That is very different from saying they ``shall.'' In other 
words, banks ``may'' do it. But, of course, banks could do it before. 
The reality is very few banks are going to do it except if they are 
under competition from direct lending and they think they have to.
  Also, added in conference on the income contingent, on income 
contingent, you repay for 25 years. At the end of 25 years if you 
become a nun or if you enter some work where you do not receive income, 
at the end of 25 years it is forgiven. In conference, it kept that 
forgiveness, but said the interest would be paid to the banks no matter 
what. The claim was that the plan the President has vetoed would double 
the direct loan program from 5 percent to 10 percent. The reality is 10 
percent of the schools had it the first year. We are in the second year 
now and almost 40 percent of the schools in the Nation now have direct 
lending. It is just universally popular. We have, in Illinois, 67 
schools using direct lending now. I have yet to hear anyone say that it 
does not work.

  One of our colleagues cited an op-ed piece in the Washington Post 
saying there is no cost difference to the Federal Government between 
direct lending and the old system. Now, if there is no cost difference, 
then give colleges and universities the choice. The reality is the op-
ed piece in the Washington Post did miss several points that Secretary 
Riley mentioned in the letter to the editor. One of the very 
fundamental points is that under direct lending, when the Federal 
Government issues bonds, we collect income tax on those bonds, on the 
interest on those bonds. When guaranty agencies issue bonds, those are 
nontaxable bonds. The difference, over a period of 7 years, is about 
$1.3 billion. The Congressional Budget Office says if you apply the 
present law--not the cooked books of the budget that was passed--to 
both 

[[Page S18691]]
programs, direct lending saves $4.6 billion.
  The claim is that the direct lending transfers the loan program from 
the private sector to the Government. Now, it is true that some of the 
banks clearly are private sector, though as our former colleague, 
Senator David Durenberger--and the Presiding Officer did not have the 
chance to serve with him here in the Senate, but he was a very 
thoughtful Member of this body,--Senator Durenberger, in comments to a 
group of bankers when they said, ``Let's use the free enterprise 
system,'' said, ``This is not free enterprise; this is a free lunch.''
  When you build into the law what the profit is and you say we will 
give you 98 percent to 100 percent of the profit, that is a pretty good 
deal. The average bank makes more money percentagewise on a student 
loan than on a house mortgage or a car loan--more than any other 
transaction other than a credit card transaction.
  Then the guaranty agencies operate with our money. The Inspector 
General of the Department of Education says there is $11 billion worth 
of Federal money at risk with the guaranty agencies. There is one in 
Indiana, for example, where the chief executive officer of that 
guaranty agency set up with Federal funds--and I fault myself for not 
being more careful, along with others, in setting this up--his pay is 
$627,000 a year. Not bad when we pay the President of the United States 
$200,000 a year. That guaranty agency spent $750,000 to lobby against 
direct lending. This is, indirectly, Federal money.
  The claim was made that the Education Department has to hire 400 new 
people to run the direct loan program. The reality is that a fraction 
of the number of people are required because you are not dealing with 
7,000 different credit agencies--banks and guaranty agencies. It is a 
much more efficient system.
  I mentioned the University of Colorado. They testified before us, and 
they said they have been able to use two less personnel to advise 
students, and they have canceled four computers that they had leased, 
and they saved substantial amounts of money.
  The statement, ``We should balance the budget without cooking the 
books''--I could not agree more. And the budget, unfortunately, as the 
Chicago Tribune mentioned, does ``cook the books.''
  The simple reality is sometimes Government does something that is 
right. Sometimes Government does something that is wrong. The old GI 
bill, that the Presiding Officer may be too young to remember, the old 
GI bill was a Government-run program that was a great program. Direct 
lending is a Government-run program. It simplifies things. It cuts out 
the middleman. If we want to have an ``assistance to banking act,'' let 
us call it that. Do not label it assistance to students and then have 
an assistance to banking act.
  It was noted in the newspapers the day before yesterday that the 
banks of America had their best quarter ever this last quarter. I am 
pleased with that. Maybe like the Presiding Officer, I have a mortgage 
on my home. I want those banks to stay in good health. I want these 
pages, in the years to come, to be able to get mortgages. I want banks 
to be healthy. But I do not want to subsidize banks and call it student 
assistance. I want to give colleges and universities the choice.
  If there is no cost to the Federal Government, as the Congressional 
Research Service says, by having the choice, or if, as the 
Congressional Budget Office says, we save money, by all means we ought 
to give colleges and universities the choice. I think it will mean the 
difference between hundreds of thousands of people going to college or 
not going to college.
  One of the other great advantages of direct lending that I did not 
mention earlier is it is open to everyone. Under the old open loan 
program, you have to fall below a certain income level and you have to 
meet other criteria. This is open to all American citizens and all 
people who are legally in our country. It is much more simple, reduces 
paperwork--it is a great program.
  Sometimes Government does things that, frankly, embarrass us who 
serve in Government. Here is an instance when Government does something 
we can be proud of. I hope, when the dust settles on all this, we will 
keep the option of direct lending for the colleges and universities of 
the country.
  Mr. President, I note no one came rushing to the floor to hear my 
remarks. I do not see anyone here requesting the floor, so I suggest 
the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. THOMAS. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Grams). Without objection, it is so 
ordered.

                          ____________________