[Congressional Record Volume 143, Number 130 (Thursday, September 25, 1997)]
[Extensions of Remarks]
[Pages E1855-E1856]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   IN SUPPORT OF THE EMERGENCY STUDENT LOAN CONSOLIDATION ACT OF 1997

                                 ______
                                 

                        HON. WILLIAM F. GOODLING

                            of pennsylvania

                    in the house of representatives

                      Thursday, September 25, 1997

  Mr. GOODLING. Mr. Speaker, I rise today in strong support of the 
Emergency Student Loan Consolidation Act of 1997. I appreciate the 
leadership efforts of our colleague from California, Mr. McKeon, in 
moving this vital legislation forward. I would also like to recognize 
the efforts of our colleague from Ohio on this issue, Mr. Boehner.
  As my committee moves forward with updating and improving the Higher 
Education Act, our goals are: Making higher education more affordable, 
simplifying the student aid system, and stressing academic quality.
  Today, we are faced with a crisis in the consolidation of direct 
student loans. Unfortunately, it dramatically points out the 
difficulties we will face as we try to move our system of financial aid 
into the 21st century.
  For direct loan borrowers, the situation is bleak. Earlier this year, 
students wishing to consolidate these loans submitted applications only 
to face lengthy delays in processing. Now students wishing to 
consolidate these loans are told not to bother, as the Department has 
shut down the entire processing system.
  The Department claims that this action was taken to ensure that its 
current consolidation customers would receive proper service. However, 
the Department's direct loan consolidation contractor is currently 
facing a backlog of 84,000 applications, and as we heard in testimony 
on the direct loan consolidation process last week, a process which 
should take 8 to 12 weeks to complete is actually taking 8 to 12 
months.
  I want to take a moment to look at this. There seems to be a 
disconnect between the Department's evaluation of their performance and 
the customer's view of the Department's service. Last week we went back 
and reviewed the statements made by the Department before Mr. McKeon's 
subcommittee in hearings on the Higher Education Act. The Department 
referred to itself as the Microsoft and Citibank of higher education. 
Dr. Longanecker said ``the Direct Loan Program provides a simpler, more 
automated, and more accountable system to borrowers * * * students have 
witnessed the development of a level of customer service not previously 
experienced in financial aid delivery.'' Well, at least one student who 
testified at our recent hearing described the Department's customer 
service as ``beset by chronic mistakes which range from incompetence to 
malfeasance.''
  I've also noticed that there appears to be a good deal of time spent 
finger pointing by the Department. They seem to be looking for others 
to blame. Blame was being placed by the Department with students and 
bankers for the problems with loan consolidation. ``A delay by any of 
these parties in submitting information required for consolidation or 
erroneous, incomplete, or late information from any one of these 
parties results in additional time needed to complete the 
consolidation,'' was one response received from the Department.
  Such information problems do not stop those in the private sector. 
Many banks and Sallie Mae experience these problems as well, yet their 
financial services and systems expertise allows them to process loan 
consolidations in a timely fashion. The Department stated three major 
problems which have caused a huge backlog of consolidation loans: 
Inherent complexity of student loan consolidation; Higher volume than 
anticipated; and Transition from one contractor to another.
  I agree that the inherent complexity of the student loan program and 
running a financial program larger than Citibank is tremendously 
difficult. I have been repeatedly pointing this out since 1991 when 
direct lending first came under consideration, and it's been my 
greatest concern with the Federal Government taking on such a huge 
task, particularly when there are private organizations already doing 
the job.
  For example, I vividly recall pointing out these concerns to my 
colleagues on the floor of the House in May 1993, as we considered a 
move to abandon the guaranteed loan program as part of the 1993 budget 
reconciliation bill. In my floor statement at that time I said:

       I have serious doubts over whether or not the Department of 
     Education can efficiently manage this program. If they fail 
     to run it properly, and all of the evidence suggests the 
     Department will not suddenly develop the administrative 
     finesse that they have lacked for so long, it will be 
     students and schools that will suffer.

  Incidentally, while I've been critical of direct lending, I may have 
given the Department too much credit. I have always felt that it would 
be easy for the Department to give money out. However, I've been 
worried that it would be difficult to collect it. Now it appears that 
giving the money out is proving to be tremendously difficult where 
consolidation loans are concerned.
  Second, it's too late to complain about higher volume than 
anticipated. The Department from day one has been actively promoting 
the benefits of direct loan consolidation. They should have anticipated 
high volume and been able to handle such volume, or they should have 
refrained from the marketing blitz they conducted.
  Last, the transition from one contractor to another is a poor excuse. 
At the time of the transfer one year ago, the new contractor should 
have been required to provide its ability to manage the consolidation 
program before ever receiving the monetary benefits of a Federal 
contract.
  On September 11 there was an article in Education daily related to 
this problem which I found revealing. It is entitled, ``Student Loan 
Checks Really Are in the Mail.`` It describes some of the problems the 
Department has created for the lending community. In this case, 
Southwest Student Services Corp. received 4,300 loan payoff checks from 
the Department of Education on one day. Most disturbing is that each 
check was sent in a single envelop--and some of the checks were 
reportedly as small as 7 cents. In these cases, the cost of issuing and 
mailing a check must exceed the value of the check by 5 or 600 percent.
  Additionally, I would note a letter from the Student Loan Fund of 
Idaho Marketing Association. They received 41 checks from the 
Department. Of that number, only five were accurate payoff amounts. 
That's an error rate of over 88 percent. Clearly performance is not at 
a level that is even minimally acceptable. This presents some very 
major concerns. With the Department sending out tens of thousands of 
checks, how can we tolerate error rates that are as high as almost 90 
percent? How can this program be audited by the Inspector General?
  The Inspector General's testimony last week makes clear that most of 
the fault for the delays and the problems with the financial accuracy 
of the Department's payment transactions lies with a misplaced reliance 
on technology. Misplaced confidence seems to pervade the Department's 
contracting for student aid delivery systems. We need only remember the 
electronic imaging debacle of 2 years ago when the Department 
contracted for electronic imaging of the FAFSA. The mistakes made with 
that contract caused more than 1 million students to be delayed in 
making their college decisions.
  Mr. Speaker, the Department of Education is clearly undergoing a 
severe crisis in management. These problems are hurting students, 
former students, and parents. Later in this Congress, the Gentleman 
from California, Mr. McKeon and I will undertake a concerted effort to 
fix those problems. However, in the near term it is absolutely 
essential that we allow student loan borrowers with direct loans to 
consolidate those loans and reduce their monthly payments.
  The legislation we are introducing today will allow that, and it will 
accomplish it without any increased costs to the borrower. It will: 
Allow borrowers with direct loans to consolidate them immediately, 
rather than having to wait months for the Department and its contractor 
to sort out their difficulties; Allow students to retain their interest 
subsidy benefits on all subsidized loans included in the consolidation 
loan as is currently allowed in the direct loan program but not the 
FFEL Program; and provide students with the interest rate currently 
applicable to direct consolidation loans--T-bill+3.1 percent 
capped at 8.25 percent--the FFEL rate is the weighted average of the

[[Page E1856]]

loans consolidated rounded up to the nearest whole percent.
  This legislation is revenue neutral and the right thing to do. 
Incidentally, there are some bureaucrats at the Department of 
Education, or at the Office of Management and Budget, or at the White 
House, who will complain about the $25 million cost of this legislation 
being paid by reducing the mandatory administrative funds for the 
direct loan program. I would remind them that students are suffering in 
the program they promoted with these funds, that obviously the money 
they have for administration has not been wisely spent to date, and 
that fixing this problem is the right thing to do.
  I strongly urge my colleagues to support us in this effort, and to 
cosponsor the Emergency Student Loan Consolidation Act of 1997.

                          ____________________