[Congressional Record Volume 143, Number 129 (Wednesday, September 24, 1997)]
[Extensions of Remarks]
[Pages E1836-E1837]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    INTRODUCING THE EMERGENCY STUDENT LOAN CONSOLIDATION ACT OF 1997

                                 ______
                                 

                     HON. HOWARD P. ``BUCK'' McKEON

                             of california

                    in the house of representatives

                     Wednesday, September 24, 1997

  Mr. McKEON. Mr. Speaker, I rise today to introduce the Emergency 
Student Loan Consolidation Act of 1997.
  Let me begin by saying that we must remember that everything we do in 
higher education has an impact on students, and the Department of 
Education's management problems are no different. It is no secret that 
I have had serious doubts about the long-term viability of the Direct 
Student Loan Program. Today we face a crisis in direct loan 
consolidation which only serves to heighten those concerns.
  However, this is not about direct loans or guaranteed loans or which 
program is better. This is about students. This is about students who 
are currently unable to consolidate their direct loans. This is about 
student loan borrowers who may pay hundreds or even thousands of 
dollars in additional interest costs, who may have serious difficulty 
in securing other credit such as a mortgage, and who may even default 
on the student loans if we do not act now to fix this problem.
  At this very moment, the contractor hired by the Department of 
Education to perform direct student loan consolidations is facing a 
backlog of 84,000 applications. This is clearly unacceptable. The 
number of students affected is actually much higher than this, since 
the Department of Education has now stopped accepting new applications 
for direct consolidation loans until this backlog is cleared. The 
Department hopes to accomplish this feat by December 1. However, to do 
that the contractor will have to quadruple the rate at which it is 
processing applications, and I have serious doubts as to whether this 
can be accomplished.
  The legislation we are introducing today will fix this problem for 
students now, in the short term, rather than making borrowers wait 
months for the Department and its contractor to straighten things out. 
Currently, the Higher Education Act of 1965 prohibits direct student 
loan borrowers from consolidating their direct student loans into FFEL 
loans through private lenders and servicers. Even if borrowers could

[[Page E1837]]

consolidate their direct loans into the FFEL Program, few would because 
in most cases they would pay a higher interest rate, and would lose 
their deferment benefits on any subsidized loans which were 
consolidated.

  Upon enactment, the Emergency Student Loan Consolidation Act will 
immediately change this to allow borrowers to consolidate direct 
student loans into FFEL consolidation loans. The interest rate for all 
new consolidation loans will be the equivalent of the 91-day Treasury 
bill rate plus 3.1 percent, the same as in the Direct Loan Program, and 
borrowers who consolidate subsidized loans, whether in the Direct 
Student Loan Program or the FFEL program will not lose their deferment 
benefits simply because they consolidate their loans.
  This is emergency legislation, so these changes will only remain in 
effect until September 30, 1998. The cost of this legislation will be 
paid for by reducing the administrative funds for the Direct Loan 
Program by $25 million.
  In conclusion, let me just finish by sharing the individual comments 
of a few of the students effected by the direct loan consolidation 
fiasco. At a hearing before the Subcommittee on Postsecondary 
Education, Training and Life-Long Learning last week, Ms. Angela 
Jamison had this to say: ``In the process of consolidating our student 
loans, my husband and I have been beset by chronic mistakes which range 
from incompetence to malfeasance.'' A process that was supposed to have 
taken her 8 to 12 weeks has taken her and her husband 8 months. The 
Jamisons were almost unable to close on their mortgage due to these 
delays, and to this day their loans have not been consolidated.
  Many others have expressed a similar lack of confidence in the 
Department's ability to provide quality customer service, and you don't 
have to go very far to hear it. In church on Sunday, I spoke with David 
Higbee, a recent law school graduate. David had written me a letter 
about his problems with the direct loan consolidation process, and in 
it he said ``we quickly received an estimate from Sallie Mae on the 
portion of our student loans we were refinancing there, the Department 
of Education was slow and refused every reasonable suggestion to 
expedite its inadequate `customer service' process.''
  I am inclined to believe these students, and I am inclined to help 
them and the 84,000 like them with similar stories. The legislation 
that I am introducing today will provide these borrowers with immediate 
emergency relief. It is budget neutral. It is also the right thing to 
do. I urge my colleagues to help these students by supporting this 
important legislation and cosponsoring the Emergency Student Loan 
Consolidation Act.

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