[Congressional Record Volume 141, Number 200 (Friday, December 15, 1995)]
[Senate]
[Pages S18700-S18701]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         STUDENT LOAN PROGRAMS

  Mr. KENNEDY. Mr. President, just briefly on another subject but a 
very important one, I address the Senate on the issue of the Republican 
budget and the student loan programs which are so important to the sons 
and daughters of working families in this country. There is a wide 
divergence in priorities between the two parties on the direct loan 
program as well as on other education issues.
  The Republican budget bill has always been bad news for students, and 
bad news for the deficit. Now, according to estimates just released by 
the Congressional Budget Office, the deficit news is $1.1 billion 
worse.
  Under the revised estimates, the negative budget impact of the 
Republican student loan provisions has more than doubled--from $900 
million to $2 billion in additions to the deficit if the Republicans 
persist in their misguided scheme to dismantle the highly successful 
``direct loan'' program for college students.
  The bill vetoed by the President last week would have limited the 
direct loan program to 10 percent of all loans, and earmarked 90 
percent of student loans for banks and other middlemen.
  Mr. President, what we had done in recent years was to develop a 
direct loan program and permitted the guaranteed student loan program 
to go into effect. The total volume of direct loans is about 40 percent 
of all the student loans; 1,350 colleges and universities are 
participating in direct lending, accounting for 40 percent of loan 
volume. Under the Republican compromise, it will be reduced to 10 
percent.
  We made efforts on the floor of the Senate to let the schools in 
Montana and throughout this country make their own judgments whether 
they wanted to go to the direct loan program or go to the guaranteed 
loan program. Not one college or university in this country selected to 
go from direct loan programs to guaranteed loan programs. Not one. It 
is a success with the students and with the administrators.
  The Republican provision is among the most notorious and 
objectionable special interest giveaways in the entire Republican 
budget plan. Its obvious motive is to divert billions of dollars in new 
business and higher profits to the banks and guaranty agencies in the 
guaranteed student loan program.
  According to CBO, if direct lending is limited to 10 percent of 
loans, the banks and guaranty agencies would gain $103 billion in 
additional business over the next 7 years, and an estimated $6 billion 
in higher profits.
  This arbitrary Republican ceiling on the direct loan program would 
force 2 million students and 1250 colleges out of direct lending and 
back into the bureaucratic maze of the guaranteed student loan program. 
Republicans are asking Congress to swallow this blatant special 
interest giveaway in the name of deficit reduction. But as the CBO's 
latest estimate makes plainer than ever, there is no deficit reduction, 
and the addition to the deficit is greater than ever.
  This problem began when the Republican budget adopted last May 
contained a biased requirement for estimating the cost of direct 
student loans. The requirement was designed to make loans to students 
by banks under the guaranteed loan program appear cheaper than loans 
issued directly to students by the Federal Government. According to 
CBO's new estimate, the use of this biased procedure will add $6.5 
billion to the deficit over the next 7 years. Other student loan 
provisions in the Republican budget save $4.5 billion over the same 
period, according to CBO's most recent calculations. Thus the net 
effect of the Republican student loan provisions is to add $2 billion 
to the deficit.
  Under the previous CBO estimate, the biased budget rule added $5.8 
billion to the deficit, and was offset by $4.9 billion in savings, for 
a net addition to the deficit of $900 million. Clearly, Republican 
deficit concerns go out the window when corporate welfare like this is 
at stake.
  Republicans would like us to believe that their attack on direct 
lending is designed to eliminate Government bureaucracy and stimulate 
the private sector. But the guaranteed student loan program is hardly a 
monument to corporate efficiency and free enterprise. It is a bloated 
bureaucracy consisting of 7,000 lenders, 41 guaranty agencies, and 25 
secondary markets who employ more than 5,000 people. That is 25 percent 
more than the entire U.S. Department of Education and 10 times more 
than the number of employees who actually administer the direct lending 
program.
  In the private sector, companies take risks in the hope of making 
profits. But there's no risk in the guaranteed student loan program. 
It's all gravy. It's all corporate welfare. The banks and guaranty 
agencies reap all the profits and take none of the risks, because Uncle 
Sam is guaranteeing payment of the loans. It's not free enterprise at 
all. It's a Government-sheltered industry that's grown up like Topsy 
under the umbrella of Uncle Sam.
  William Niskanen, who is now president of the Cato Institute, and was 
formerly a member of the Council of Economic Advisers under President 
Reagan, put it this way:

       These guaranteed loans are a sweet deal for the banks; 
     unless they choose to collect on the loans, the banks provide 
     no services other than to make a loan guaranteed by the 
     federal government at a substantial premium above the rate if 
     they made the same loan to the government. Moreover, because 
     lenders have little incentive to be diligent collectors of 
     guaranteed loans, the government has set up a complex and 
     costly system of nonprofit guaranty agencies to manage these 
     loans.

  Larry Lindsay, a member of the Federal Reserve Board appointed by 
President Bush, put it even more bluntly: ``As long as it is necessary 
to provide a profit to induce lenders to guarantee student loans, 
direct lending will be cheaper.''
  The cost-effectiveness of direct lending was confirmed just this week 
in a study by the audit committee of the 

[[Page S18701]]
Colorado Legislature. At the University of Colorado at Boulder and 
Colorado State University, the implementation of direct lending saved 
the universities $192,000 and $133,000, respectively, in a single 
academic year.
  Direct lending also works better for students and colleges than the 
guaranteed loan system. According to colleges participating in direct 
lending, it provides excellent service. The application is simpler and 
the disbursing process is more prompt. Students spend less time filling 
out paperwork and waiting in lines. Loan funds get to students more 
quickly.
  In 1993, when the University of Colorado at Boulder was using the old 
guaranteed loan program, only 3,000 checks were available to students 
by the first day of class. This year, under direct lending, 6,600 
checks were ready for students to buy needed books and supplies. One 
student called it ``the best thing since microwave brownies.''
  Colleges and universities across the country share this view. In a 
survey by the Education Daily, more than 90 percent of participating 
colleges and universities called direct lending ``excellent.''
  Direct lending has also created more flexible repayment terms. It 
gives students the option of paying their loan back as a percentage of 
their income. When graduates are starting a family, working in their 
first job, starting a business, or going into public service work, they 
can make smaller payments.
  Our Republican colleagues claim that their budget bill would extend 
flexible repayment terms to students in the guaranteed loan program. 
But under the Republican plan, the availability of flexible repayment 
options, such as income-contingent repayment, would depend on whether a 
particular guaranteed loan holder chooses to offer it.
  Ask colleges and universities what they think. They're outraged at 
being forced out of one of the most successful reforms in the history 
of Federal aid to education. Some colleges and universities across the 
country have written urging Congress to reject this arbitrary limit on 
their ability to choose the loan program that best serves their 
students.
  Over a hundred of the colleges that signed the letter are not in 
direct lending. But they too recognize its benefit for their students. 
As they put it:

       Those of us who represent institutions that are satisfied 
     with the guaranteed student loan program also support the 
     continued availability of the direct loan program to 
     institutions. The competition created by direct lending has 
     induced banks and guarantors to improve the efficiency of 
     their delivery process, and has, for the first time, provided 
     the student loan industry with market-based incentives to 
     provide better service. The guaranteed student loan system 
     has improved more since the phase-in of direct lending two 
     years ago than it did over the more than two decades of 
     existence prior to 1993.

  The message doesn't get much clearer. Colleges and universities 
across the country are unanimous. The student loan system needs more 
competition, not less. With direct lending, both of loan programs have 
been working more efficiently because of the competition. What we 
saying is let competition rule. Let colleges and universities make the 
judgment themselves, not have that dictated from Washington.
  What are our Republican friends afraid of? Why not let the two 
systems compete fair and square? Let the marketplace pick the winner, 
not Congress.

  It is hard to find a more vivid or disgraceful example of the 
prostitution of Republican principles. When a special interest's 
Government-guaranteed profits are at stake, Republicans are more than 
willing to sell out free-market competition, and continue the heavy 
hand of a Government-guaranteed monopoly.
  It's obvious what's happening here. Direct lending is taking colleges 
and universities by storm. It's one of the best new ideas in higher 
education in years. It's good for colleges and good for students, and 
it saves Federal dollars.
  Direct lending has already established its solid appeal to the 
country. It's already captured 40 percent of the market in 2 short 
years.
  So the guaranteed loan industry has mounted a desperate last-ditch 
lobbying campaign to persuade Congress to roll back direct lending.
  Republicans should scrap their cynical attack on direct lending. They 
should let competition work. They should allow colleges and 
universities to choose the kind of loan program they want. And if they 
do, they'll find $2 billion more to put into deficit reduction at this 
stage of our balanced budget negotiation.
  CBO has finally come out on this issue and found that this will be 
more costly to the Federal taxpayers, something that we have known for 
some period of time, and they have come out with that report at the 
present time. That, I think, gives the administration strong arguments 
to stand by their position to give choice to the States and the 
colleges and universities on which way they want to go, direct loans or 
guaranteed loan program.
  We hear so much rhetoric, do not let Washington dictate what is good 
back home in Montana or Massachusetts.
  If there is ever an example of that, Mr. President, it is permitting 
the colleges and universities in our 50 States to make their own 
judgments which direction to go in, what we do now. When they go to the 
direct loan, it saves the overall taxpayers billions of dollars. That 
has been reaffirmed once again this afternoon with the Congressional 
Budget Office review of these figures and statistics which are the best 
evidence.
  I thank my friend and colleague from Virginia for permitting me the 
opportunity to address the Senate.
  Mr. DOLE. Mr. President, what is the pending business?

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