[Congressional Record Volume 142, Number 123 (Tuesday, September 10, 1996)]
[House]
[Pages H10120-H10123]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   STUDENT DEBT REDUCTION ACT OF 1996

  Mr. GOODLING. Madam Speaker, I move to suspend the rules and pass the 
bill (H.R. 3863) to amend the Higher Education Act of 1965 to permit 
lenders under the unsubsidized Federal Family Education Loan Program to 
pay origination fees on behalf of borrowers, as amended.
  The Clerk will read as follows:

                               H.R. 3863

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Student Debt Reduction Act 
     of 1996''.

     SEC. 2. UNSUBSIDIZED STUDENT LOANS.

       (a) Amendment.--Paragraph (1) of section 428H(f) of the 
     Higher Education Act of 1965 (20 U.S.C. 1078-8(f)(1)) is 
     amended to read as follows:
       ``(1) Amount of origination fee.--Except as provided in 
     paragraph (5), an origination fee shall be paid to the 
     Secretary with respect to each loan under this section in the 
     amount of 3.0 percent of the principal amount of the loan. 
     Each lender under this section is authorized to charge the 
     borrower for such origination fee, provided that the lender 
     assesses the same fee to all student borrowers. Any such fee 
     charged to the borrower shall be deducted proportionately 
     from each installment payment of the proceeds of the loan 
     prior to payment to the borrower.''.
       (b) Conforming Amendments.--Section 428H(f) of such Act is 
     further amended--
       (1) in paragraph (3), by striking ``the origination fee'' 
     and inserting ``any origination fee that is charged to the 
     borrower'';
       (2) in paragraph (4), by striking ``origination fees 
     authorized to be collected from borrowers'' and inserting 
     ``origination fees required under paragraph (1)''; and
       (3) by adding at the end the following new paragraph:
       ``(6) Exception.--Notwithstanding paragraph (1), a lender 
     may assess a lesser origination fee for a borrower 
     demonstrating greater financial need as determined by such 
     borrower's adjusted gross family income.''.
       (c) Report on Competitive Allocation.--Within 60 days after 
     the date of enactment of this Act, the Secretary of Education 
     shall submit to each House of the Congress a legislative 
     proposal that would permit the Secretary to allocate the 
     right to make subsidized and unsubsidized student loans on 
     the basis of competitive bidding. Such proposal shall include 
     provision to ensure that any payments received from such 
     competitive bidding are equally allocated to deficit 
     reduction and to pro rata reduction of origination fees in 
     both guaranteed and direct student loans.

     SEC. 3. STUDY OF LOAN FEES.

       (a) Study Required.--The Secretary of Education shall 
     conduct a statistical analysis of the subsidized and 
     unsubsidized student loan programs under part B of title IV 
     of the Higher Education Act of 1965 to gather data on 
     lenders' use of loan fees and to determine if there are any 
     anomalies that would indicate any institutional, programmatic 
     or socioeconomic discrimination in the assessing or waiving 
     such fees.
       (b) Report.--The Secretary of Education shall submit to 
     each House of the Congress a report on the study required by 
     subsection

[[Page H10121]]

     (a) within 2 years after the date of enactment of this Act.
       (c) Statistical Characteristics To Be Studied.--In 
     conducting the study required by subsection (a), the 
     Secretary of Education shall compare recipients of loans on 
     the basis of income, residence location, type and location of 
     higher education, program of instruction and type of lender.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Pennsylvania [Mr. Goodling] and the gentleman from Michigan [Mr. 
Kildee] each will control 20 minutes.
  The Chair recognizes the gentleman from Pennsylvania [Mr. Goodling].

                              {time}  1445

  Mr. GOODLING. Madam Speaker, I yield myself what time I may consume 
and would preface my remarks by saying, as the last bill, here is 
another bill that is a bipartisan bill coming from my committee. Seems 
that every day we are here with a bipartisan effort coming from my 
committee.
  Today we are taking up the Student Debt Reduction Act of 1996. This 
bill will allow student loan lenders or any other interested party to 
pay the origination fees charged to students who borrow unsubsidized 
Stafford Loans. This practice is already allowed for subsidized 
Stafford Loans, but a Department of Education ruling has prohibited 
this benefit to students who borrow unsubsidized Stafford Loans. By 
enacting this bill, we are simply extending the same benefits to 
unsubsidized loan borrowers.
  It is rather timely that we should be considering this bill today, 
just as millions of students are making their way to college campuses 
all across the country. And as they make their way, we are all 
painfully aware of their growing concern about paying the bills for 
tuition, room and board, books and basic living necessities. This bill 
aims to ease some of that concern by getting more cash in the hands of 
students.
  Madam Speaker, anyone who reads the newspaper or watches television 
knows that college costs are a growing concern among families. A recent 
GAO study of college costs found that tuition at 4-year public colleges 
and universities has increased 234 percent over the last 14 years. 
Compare that to median household income which rose 82 percent and the 
Consumer Price Index which rose only 74 percent over the same time 
period, and it is easy to understand the growing concern over the cost 
of a college education.
  That is why I am especially pleased that my committee reported out 
the Student Debt Reduction Act by a unanimous vote of 34 yeas to 0 
noes. This bill fosters competition among student loan lenders which 
directly results in monetary benefits to students. For example, a 
student who borrows an unsubsidized loan of $6,625 receives an upfront 
fee reduction of $198.75. If this same student borrows the maximum 
allowed for an unsubsidized loan over 4 years of college, the fee 
reduction will amount to $1,053.75. That is cash in students hands that 
can be used for educational expenses.
  In addition to these savings, this House approved another increase to 
the Pell grant program in addition to last year's increase so that 
students may receive the highest Pell grant maximum in the history of 
the program. This House also approved a $68 million increase for the 
work study program so that more students may obtain job related 
experience while enrolled in college. Efforts such as these simply 
reaffirm our commitment to higher education in this country.
  In conclusion, I just want to talk briefly about the impact of this 
legislation on students in Pennsylvania. A program to help students and 
their families operated for 1 year before the Department of Education 
issued its ruling with respect to unsubsidized loans. That programs 
helped 36,929 students from families with incomes under $21,000 by 
paying a portion of the originating fees. Those students had an extra 
$2.1 million to use toward their college education expenses.
  In Pennsylvania, the program will continue on for 27,601 of those 
students. Unfortunately, without this legislation, 9,328 needy students 
who received unsubsidized loans will not be allowed to benefit from the 
program and will be forced to pay higher up-front fees. There is no 
reason this should happen. We have an opportunity to see that it does 
not by voting for the Student Debt Reduction Act.
  Madam Speaker, I reserve the balance of my time.
  Mr. KILDEE. Madam Speaker, I yield myself such time as I may consume.
  Madam Speaker, I rise in support of H.R. 3863, the Student Debt 
Reduction Act, even though I continue to have reservations about the 
timing of the legislation in light of the upcoming reauthorization of 
the Higher Education Act next year.
  My colleagues on the other side of the aisle claim this bill corrects 
a simple technical problem, but I believe it does much more than that. 
This legislation has the admirable intent of reducing college costs for 
students, which I am always in favor of, but it also has significant 
policy implications for student loan programs which have not been 
examined at either subcommittee or full committee levels.
  Throughout the country, students and their families are facing 
increasing college costs and declining Federal aid. Democrats, Madam 
Speaker, have always been supportive of expanding opportunities for all 
students in Federal financial aid programs. I, for one, would like to 
see the elimination of this loan origination fee altogether and will 
make this a priority issue during next year's reauthorization.
  Madam Speaker, I am concerned that this bill as written would permit 
lenders to pay origination fees for some students but would not provide 
this same opportunity for students who receive loans under the direct 
loan program. We should have a level playing field in the student loan 
arena, and this bill upsets that equal ground, I believe.
  Despite its flaws, however, this legislation has the potential, Madam 
Speaker, of lowering college costs for students, and I urge my 
colleagues to support it.
  Madam Speaker, I reserve the balance of my time.
  Mr. GOODLING. Madam speaker, I yield myself 30 seconds just to say 
that, if there was ever a time to try to level the playing field, it is 
now, because the direct lending advocates in the White House have made 
it very clear that they are going to do everything they possibly can to 
eliminate every other possibility.
  So this will be leveling that playing field that they have positively 
piled up rocks and mounds and so on to make sure that any other program 
cannot succeed.
  Madam Speaker, I yield 3 minutes to the gentleman from Pennsylvania 
[Mr. Greenwood, a member of the committee.
  Mr. GREENWOOD. Madam Speaker, I thank the chairman of the full 
committee for yielding me this time.
  Madam Speaker, H.R. 3863, the Student Debt Reduction Act of 1996, 
will allow students to receive lower-cost unsubsidized student loans by 
permitting lenders in the Federal Family Education Loan Program to 
waive or reduce origination fees. The savings to our students may be 
the full origination fee, which is 3 percent of the total loan amount.
  Since budgetary concerns are paramount today, as they should be, it 
is important to note that H.R. 3863 is budget neutral. It will not 
increase or decrease the amount of student fee revenues collected and 
transmitted to the Federal Government, but it will increase the amount 
of funds transmitted to our hard-working middle-class college students 
and their families.
  Republicans in Congress are working to make college more affordable 
for middle-class families struggling to afford their children the 
opportunity provided by a college degree, and this bill is an excellent 
example of our work.
  Madam Speaker, current law states that a lender may charge a student 
borrower an origination fee on a subsidized student loan but shall 
charge a student borrower of an unsubsidized loan. This bill will close 
a loophole in the law by allowing lenders to treat unsubsidized loans 
the same as subsidized loans and in the process permit struggling 
middle-class families and students the same return as lower-income 
borrowers.
  Under this bill we will allow the full amount of the student loan to 
flow to middle-class students, we can encourage competition among 
student loan lenders, and we can guarantee that the type of relief 
permitted under a subsidized loan will now be permitted under an 
unsubsidized loan.

[[Page H10122]]

  This is a commonsense plan to put money in the pockets of students to 
pay educational expenses.
  Madam Speaker, the bottom line of this bill is fairly 
straightforward. It is good business for banks to make these loans. 
They are guaranteed by the Federal Government, and they profit from the 
interest paid by the students. Because it is good business and 
attractive business for the banks, we think this provision will allow 
them to compete for the business by offering to waive all or part of 
the 3 percent loan And for a student borrowing the maximum amount for 4 
years, that thousand dollar difference can mean a great difference in 
the ability of that student to have the books and the other resources 
needed for their education. For that reason, I rise to support H.R. 
3863.
  Mr. GOODLING. Madam Speaker, I yield 2 minutes to the gentleman from 
California [Mr. Riggs], another member of the committee.
  Mr. RIGGS. Madam Speaker, I have to tell my colleagues that I am 
genuinely confused with this legislation on the floor today, because I 
would have sworn I have been seeing and hearing radio and television 
ads in my congressional district and in congressional districts around 
the country, of course all held by incumbent Republicans, run by the 
AFL-CIO, the big labor bosses of the AFL-CIO based back here in 
Washington, who have practically become the campaign arm of the 
national Democratic Party and the Clinton reelection campaign, accusing 
us of cutting funding for student loans.
  So I am genuinely confused. I thought our 7-year plan for balancing 
the Federal budget increased taxpayer funding for student loans by 50 
percent, or $12 billion, from $24 billion today to $36 billion 7 years 
from now.
  As the chairman just pointed out, we have increased funding for the 
maximum Pell Grant award to the highest level in our country's history. 
We have level funded the TRIO Program for college-bound minorities. And 
today we bring this legislation, the Student Debt Reduction Act, to the 
floor, which allows lenders in the student loan program to pay 
origination fees charged to students who obtain unsubsidized, that is 
to say a situation where the student is responsible for the interest, 
to pay origination fees charged to students who obtain unsubsidized 
Stafford loans.
  Madam Speaker, this bill is good legislation. It increases 
competition in the student loan program, and it lowers costs for 
college students, making a college education for all Americans more 
accessible and more affordable.
  So, Madam Speaker, I am very confused. To hear the rhetoric that has 
been coming out of Washington by the national Democratic Party and 
their liberal special interest allies, one would be led to believe that 
all we have been doing is cutting or gutting taxpayer funding for 
student financial aid, when nothing could be further from the truth.
  Republicans do care about making a college education more affordable 
for our young people. We realize it is a good investment, a farsighted 
investment of the taxpayer's dollar. That is why we have made that in 
fact a priority in this session of Congress, the rhetoric of our 
colleagues notwithstanding.
  All I would say in conclusion is that those who want to continue to 
maintain that we are cutting taxpayer funding for student financial aid 
ought to go back to school because they cannot do their math.
  Mr. GOODLING. Madam Speaker, I yield 2 minutes to the gentleman from 
Pennsylvania, Chairman Clinger.
  Mr. CLINGER. Madam Speaker, I thank the gentleman for yielding me 
this time. Let me first commend my distinguished colleague from 
Pennsylvania, Chairman Goodling, for bringing this very important 
legislation before us today and for his long leadership on education 
issues throughout his tenure in Congress. He has made a great 
contribution to improving education in this country at all levels.
  I also want to recognize my fellow sponsors of the bill, the 
gentleman from Pennsylvania, Congressmen Greenwood, Fattah, and Gekas, 
the gentleman from California, Mr. McKeon, the gentleman from Illinois, 
Mr. Fawell, and others for their commitment to our Nation's students.
  I am pleased to share my support for the Student Debt Reduction Act 
of 1996. The bill brings together two issues that have had the highest 
priority, my highest priority during my 18 years in Congress: education 
and debt reduction. There is no greater gift to our young people than 
an education. By reducing individual cost to students, we are giving 
students the chance to focus on their education instead of how they are 
going to pay for it.
  Specifically, the bill allows lenders in the student loan program to 
pay origination fees charged to students who obtain unsubsidized 
Stafford, so-called Stafford loans, and in so doing we are lowering the 
cost to students and increasing competition within the student loan 
program by making unsubsidized loans an equal player, all while adding 
no cost, repeat, no cost to the Federal Government.
  So as a Congressman who represents literally countless higher 
educational institutions, Penn State, Bucknell, and many others, I know 
the overwhelming feelings that are associated with paying for an 
education.
  This minor and, really, technical change to existing law will help 
thousands of students in Pennsylvania and hundreds of thousands of 
students nationwide who have been treated unfavorably until this point 
in time.

                              {time}  1500

  I am proud to be a cosponsor of the Student Debt Reduction Act, and 
urge my colleagues to support it overwhelmingly and make education more 
affordable and available for an even greater number of students.
  Mr. GOODLING. Madam Speaker, I yield 2 minutes to the gentleman from 
Pennsylvania [Mr. English].
  Mr. ENGLISH of Pennsylvania. Madam Speaker, it is with great pleasure 
that I rise today in strong support of H.R. 3863, the Student Debt 
Reduction Act. Access to a college education for young Americans 
regardless of background is key to the American dream, but the cost of 
higher education is making it harder for many middle-class families to 
pay for tuition, and many students end up saddled with a debt burden 
that limits ultimately their choices.
  I am proud to be a cosponsor of this important legislation introduced 
by the chairman of the Committee on Economic and Educational 
Opportunities which, in effect, will allow lenders to waive or reduce 
the origination fee on unsubsidized Stafford loans by paying the fee 
for a student. Lenders are already permitted to pay the origination 
fees charged to a student who obtains a subsidized Stafford loan. This 
legislation simply extends the same consideration to those borrowers of 
unsubsidized loans.
  As a result of this legislation, students will find themselves with 
more money for educational costs. With the cost of college education on 
the rise, that money can be put to good use.
  The savings to an individual student may be as much as the full 
origination fee of 3 percent of the loan amount. Students will be able 
to use their student loans for what they were intended, to pay for a 
college education. This legislation encourages competition by loan 
providers to the great benefit of students who are able to reduce their 
education financing costs.
  Madam Speaker, I urge my colleagues to vote in favor of this 
important legislation. It provides Congress with an opportunity to give 
students the best possible financial aid packages by encouraging 
competition between lenders of unsubsidized and subsidized Stafford 
loans.
  Mr. KILDEE. Madam Speaker, I yield myself such time as I may consume.
  Mr. Goodling and I work closely together and we have had a nice 
bipartisan spirit out here on two bills. It is regrettable that the 
gentleman from California [Mr. Riggs] had to inject a bit of 
partisanship in this, attacking, among other things, the AFL-CIO. This 
bill is too important to inject those matters into this.
  I regret that Mr. Riggs, the gentleman from California, did this. I 
want to remind him that he himself voted last year on the 
reconciliation bill that left the House for a $10 billion cut in 
student loans, including the in-school interest subsidy. So let us try 
to get this bill passed.
  Mr. Goodling and I worked very closely together. I regret this 
injection

[[Page H10123]]

of partisanship. I urge passage of this bill.
  Madam Speaker, I reserve the balance of my time.
  Mr. GOODLING. Madam Speaker, I yield myself 1 minute, just to again 
offer another challenge on this legislation to college and university 
presidents by repeating what I said earlier: A GAO study of college 
costs found that tuition at 4-year public colleges and universities has 
increased 234 percent over the last 14 years, but the median house 
income rose only 82 percent and the Consumer Price Index rose only 74 
percent. This committee wants to know why the dramatic increases in 
college costs, and we want to get a handle on that so that more 
students will have an opportunity to attend a 4-year institution and 
graduate from a 4-year institution, because the number of dropouts from 
4-year institutions has reached an all-time high.
  Mr. McKEON. Madam Speaker, today I rise in support of H.R. 3863, the 
Student Debt Reduction Act. This legislation, which I cosponsored along 
with Chairman Goodling and other House colleagues, allows lenders or 
other interested parties to pay the origination fees charged to a 
student upon obtaining an unsubsidized Stafford loan.
  Currently, lenders are allowed to pay the origination fees on behalf 
of students who borrow subsidized Stafford loans. I was quite surprised 
to learn that the Higher Education Act, as interpreted by the 
Department of Education, did not provide the same benefit for students 
borrowing unsubsidized Stafford loans.
  I support this legislation for several reasons. Most importantly, it 
results in lower costs for students. At a time when students and 
parents everywhere are worrying about paying for college, every extra 
dollar becomes more and more important. It also specifically prohibits 
any discrimination on the part of lenders when offering programs that 
reduce a student's origination fees. Lastly, the bill results in 
increased competition among lender in the student loan program, at no 
increased cost to the Federal Government.
  This simple change to the Higher Education Act could mean a great 
deal to college students across the country. I urge all of my 
colleagues to support the Student Debt Reduction Act.
  Mr. ANDREWS. Madam Speaker, I share the laudable goal of H.R. 3863, 
to reduce the costs to students of borrowing for educational expenses, 
and I applaud the Committee on Economic and Educational Opportunities 
for its efforts to achieve this goal by cutting student loan fees. I 
would note that student loan origination fees were initially intended 
as a temporary measure, and it is high time that we repeal this tax on 
borrowing for all students. However, this legislation remains flawed, 
because it will create an unpredictable and unequal student loan 
system, in which some students will see their loan fees cut, while 
other students will receive no benefit.
  As originally written H.R. 3863 would have given lenders the 
discretion to pay loan origination fees for some borrowers but not 
others. In all likelihood, the lenders would waive the fee for the most 
affluent students, who are better lending risks, in order to attract 
their business. Thus, the most needy students would have been required 
to pay more to participate in the same lending programs as affluent 
students. Thus, the bill would have created incentives for lenders to 
pay the fee for students who are perceived as better lending risks. As 
a result, certain institutions would have a competitive advantage over 
others. This would have forced smaller lenders out of business, and 
might have led to less access to loans for needy students.
  To address these concerns about potential discrimination among 
students and schools, I offered an amendment in committee, which I was 
pleased was adopted, to help prevent this possible unintended 
consequence of H.R. 3863. My amendment makes clear that lenders cannot 
vary the fee that they charge to student borrowers based on their 
credit risk. Additionally, my amendment gives the lender some 
discretion to further cut the origination fee for some student 
borrowers if they, in fact, show a greater need. Lenders, thus, are 
prohibited from discriminating against lower-income students and are 
empowered to offer them further assistance at their discretion.
  Unfortunately, the bill as currently written would permit lenders to 
pay origination fees for some students, but would not provide the same 
opportunity for cost savings to students who receive loans under the 
Direct Loan Program. The result will be discrimination among students 
based on the program from which they receive their student loans.
  Students, colleges and universities, and the taxpayers are best 
served if there is free, open competition and choice. Competition means 
that students and families can evaluate all the different loan options 
available to them and make the choice that is best for them. To ensure 
free competition in the student loan arena, the basic ground rules 
should be equal for all kinds of loans.

  Loan fee cuts must be applied equitably to benefit students without 
regard to whether their institution participates in the Federal Family 
Education Loan Program [FFEL], the Direct Loan Program, or both. It is 
important to keep terms and conditions as nearly the same as possible, 
both to provide a level playing field so that students and institutions 
continue to benefit from the healthy competition that currently exists 
between the two programs, and to ensure that students in equivalent 
financial situations are treated equally. We should not only reduce the 
fees on the bank- and guaranty agency-based unsubsidized loans, but we 
should also extend that fee reduction to students who receive direct 
loans.
  If it is a good idea to reduce these fees for students who borrow 
from banks or from guaranty agencies, then it is an equally good idea 
to extend that same opportunity to all students who would borrow from 
the Direct Student Loan Program. This committee has the opportunity to 
provide relief to all students, regardless of where they get their 
loan, while achieving our goal of a balanced Federal budget.
  Cutting fees will help students who are faced with rising college 
costs and declining Federal aid. Over the past 15 years--1980-95--
tuition at private 4-year higher education institutions has increased 
by 89 percent and at public 4-year institutions by 98 percent. In the 
same period of time, median family income has increased by 5 percent 
and student financial aid per student has increased by 37 percent. 
Clearly the ability of students and their families to pay for higher 
education has diminished significantly. Student financial aid has 
clearly not kept pace with rising costs. In the mid-1970's about 76 
percent of the financial aid which students received from Federal 
programs was grants and 21 percent was loans. In the mid-1990's the 
proportions have been reversed, with 26 percent of the Federal student 
aid in grants and 72 percent in loans.
  Another problem with H.R. 3863 is that guaranty agencies could take 
the so-called excess reserves accumulated from students who have 
already borrowed money, draw down those excess reserves in order to 
help finance this cut in the fees, and in effect, use the money paid by 
a student 5 years ago under a fee to help reduce the fee for a student 
who borrows next year. Banks would not have that same opportunity to 
get capital at basically no cost, nor would the Federal Government. In 
order to level that playing field, we should cut loan fees for all 
students, whether they borrow from a guaranty agency, a bank, or the 
Federal Government through direct lending.
  To pay for fee reductions for all students, regardless of where they 
get their loan, we should apply savings already identified in the 
budget process but not yet used: recovery of these excess guaranty 
agency reserve funds and an increase in the lender loan fee. We have 
already concluded in our budget process that lenders and guaranty 
agencies are in a better position to bear these costs than students 
are.
  In summary, under H.R. 3863, students who take out an unsubsidized 
loan from a guaranty agency or a bank get a fee cut, which will lower 
their cost of borrowing for school. Yet their next-door neighbors on 
campus, with the same family income and the same tuition, who happen to 
receive their loan through the Direct Loan Program, are not offered the 
same savings. This inequity makes no sense, and it is a serious flaw in 
the legislation.
  Mr. GOODLING. Madam Speaker, I yield back the balance of my time.
  Mr. KILDEE. Madam Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Ms. Greene of Utah). The question is on the 
motion offered by the gentleman from Pennsylvania [Mr. Goodling] that 
the House suspend the rules and pass the bill, H.R. 3863, as amended.
  The question was taken.
  Mr. GOODLING. Madam Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 5 of rule I and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

                          ____________________