[Congressional Record Volume 143, Number 12 (Tuesday, February 4, 1997)]
[Extensions of Remarks]
[Pages E141-E142]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          INTRODUCTION OF EWING-LEWIS LENDER AUDIT LEGISLATION

                                 ______
                                 

                          HON. THOMAS W. EWING

                              of illinois

                    in the house of representatives

                       Tuesday, February 4, 1997

  Mr. EWING. Mr. Speaker, in partnership with Mr. Lewis of Kentucky, I 
have introduced a bill which will repeal an ineffective and burdensome 
regulation now mandated by the Higher Education Act of 1965, as amended 
by the Higher Education Amendments of 1992. This act blindly requires 
all lenders who participate in the Federal Family Education Loan 
Program to perform expensive, comprehensive annual audits on their 
student loan portfolios. Similar legislation was included in the 
continuing resolution adopted for fiscal year 1997, and thus expires on 
September 30 of this year. Passage of this bill will permanently extend 
the lender audit exemption.
  In our respective districts, the gentleman from Kentucky and I 
represent small banks and credit unions which maintain and service 
small student loan portfolios in compliance with the Federal Family 
Education Loan Program. The profit on these portfolios is estimated to 
be around $3,000 to $5,000 annually, while the audit required by the 
Department of Education costs anywhere from $2,000 to $14,000 annually. 
As you can see it does not make sense for small lenders to service 
these loans and participate in the FFEL program. In fact, many small 
lenders are selling their portfolios and leaving the student loan 
business altogether. This is not fair to student borrowers in rural 
areas who are increasingly unable to utilize lending institutions that 
they are familiar with. This is also not fair to smaller lenders who 
wish to service and maintain student loans. If this policy is enforced, 
small lenders will be effectively cut out of the student loan business 
and consumers will be denied the opportunity to do business at their 
local bank.
  I contacted the Department of Education about the possibility of a 
waiver or alternative to this detrimental mandate. The Department 
stated, ``* * * lender audits are required by statute * * *'' and that 
the ``* * * statute does not provide authority for the Department to 
waive the annual audit based on the size of the lender's FFEL portfolio 
or the cost of the audit.'' Furthermore, according to the Department of 
Education's Office of the Inspector General, lender portfolios totaling 
less than $10 million do not even have to send their audit to the 
Department for review. They are only required to ``* * * hold the 
reports for a period of 3 years and shall submit them only if 
requested.'' That means lenders waste thousands of dollars on a 
compliance audit that is never sent anywhere or reviewed by anyone. I 
have no doubt that protecting the integrity of the Student Loan Program 
is important to all of us. However, this current situation does not 
protect any portfolios under $10 million because no one reviews the 
results of the audits.

  The Office of the Inspector General at the Department of Education 
has also expressed

[[Page E142]]

concern regarding this burden in their semiannual report (October 1993-
March 1994) stating, ``* * * we are concerned that the cost may 
outweigh the benefits of legislatively required annual audits of all 
participants, regardless of the size of participation or the risk they 
represent to the program.'' In this report the Inspector General 
recommends that a threshold be established for requiring an 
institutional audit, ``* * * and we continue to believe that a 
threshold is necessary for both the institutional and lender audits. 
Such a threshold would eliminate the audit burden for the smaller 
participants in the program while helping assure that scarce 
departmental resources are focused on the areas of greatest risk.''
  The Ewing-Lewis bill works in concert with the Department of 
Education and the authorizing committee which have expressed the need 
for an audit threshold. This legislation will help the little guy in 
the student loan business and ensure consumer choice and convenience. 
Please support this sorely needed legislation.

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