[Congressional Record Volume 142, Number 38 (Tuesday, March 19, 1996)]
[House]
[Page H2461]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        THE STUDENT LOAN PROGRAM AND THE DEPARTMENT OF EDUCATION

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from South Carolina [Mr. Graham] is recognized for 5 minutes.
  Mr. GRAHAM. Mr. Speaker, I would like to take this opportunity to 
bring up a subject that is on many people's minds and affects every 
Member of this body, and that is the student loan program and the 
Department of Education's mishandling of almost 1 million student loan 
financial aid applications. I have got behind me here an article in 
last week's Chronicle of Higher Education. The article is titled, 
``Sorting Out a Foul-up in Student Loans.'' The foul-up is that 900,000 
financial aid applications that should have already been processed by 
the Department of Education are in a bureaucratic backlog caused by the 
irresponsible mismanagement of the student loan program.
  Before we go any further, I think it is important to note the way the 
student loan program works. Most student loans are guaranteed by the 
Federal Government, and the money comes from a private banking 
institution. The banks will be reimbursed in the event of a default, 98 
cents on the dollar. We are trying to streamline that process to have 
more risk being shared by the private sector. But believe it or not, 
there is a move afoot to replace private-sector capital, private-sector 
enterprise and have the Federal Government become the sole lending 
agency for student loans in this country. Can you imagine the 
Department of Education becoming the third largest consumer loan entity 
in the United States?
  Now, what this means is that there is a move afoot by this 
administration to replace the private sector totally where we share 
risk with the private sector. The Federal Government co-signs these 
notes and in the event of a default, the private sector absorbs part of 
the loan default and the Federal Government absorbs the largest part. 
But the direct lending program advocated by the administration would 
totally take the private sector out. The Department of Education would 
become the third largest consumer loan institution in America.
  You would have bureaucrats at the Department of Education become 
bankers. They would lend the money. They would collect the money in 
theory and it would be a disaster. It would be a disaster for the 
taxpayer. It would be a disaster for the students because the very same 
group that would be in the banking business is the very same group that 
is trying to process applications for loans that would be approved by 
the private sector. The state of that situation is that 900,000 student 
loan applications are backlogged and the Department of Education is 
trying to blame it on the snow and the shutdown of the government for 
21 days. Both of them are just flat false reasons.

  The truth is that it is a very bureaucratic, very ineffective system 
that they have in place to process these loans. The last thing in the 
world we need to do is to extend their power, not only let them process 
the applications but lend and collect the money. That would be 
disastrous for the American taxpayer.
  Mr. HOEKSTRA. Mr. Speaker, will the gentleman yield?
  Mr. GRAHAM. I yield to the gentleman from Michigan.
  Mr. HOEKSTRA. Mr. Speaker, it is very interesting. The Secretary of 
education has moved this into the political arena and has identified 
the government shutdown, the weather as being reasons why they have 
this tremendous backlog. In reality, the reason for this backlog is 
last fall the department was late in developing the new forms. They had 
some severe computer start-up problems. The Secretary of Education had 
the authority, actually had the responsibility to keep the people 
working who worked on the student loan program during the government 
shutdown but decided not to have those people employed and to furlough 
them even though they are on permanent appropriations.
  As oversight chairman, we challenged that decision by the Secretary 
of Education. The OMB came back and instructed the Secretary of 
Education that their application of government rules and regulations 
was being applied inappropriately, that these people should be at work, 
and so now to come back and put the blame on Congress is totally 
inappropriate.
  I think the gentleman brings out another good point here because we 
had a hearing today. We had a hearing on the Corporation for National 
Service. The same thing that is going on with the student loan program 
is going on with the Corporation for National Service, the student loan 
program is mismanaged, mismanagement of financial resources. 
Corporation for National Service, $500 million per year of taxpayers' 
spending, the books for 1994, the books for 1995 are not auditable. 
This is not just student loans, this is a pattern of mismanagement of 
tax dollars throughout a number of different agencies through the 
Federal bureaucracy.
  I thank the gentleman for yielding.

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