[Congressional Record Volume 143, Number 150 (Friday, October 31, 1997)]
[Senate]
[Pages S11534-S11536]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            EMERGENCY STUDENT LOAN CONSOLIDATION ACT OF 1997

  Mr. JEFFORDS. Mr. President, I want to bring to the attention of my 
colleagues an important matter, which I hope can receive consideration 
before we leave this fall.
  Last week, the Senate Committee on Labor and Human Resources 
unanimously reported out a bill, S. 1294, the Emergency Student Loan 
Consolidation Act of 1997. This measure is a modest, but extremely 
important, effort designed to assist students attempting to finance 
their higher education.
  The measure enjoys broad bipartisan support. The House companion 
bill, H.R. 2335, was approved by a vote of 43 to 0 by the House 
Committee on Education and the Workforce. This measure, with language 
identical to S. 1294, as reported by the Labor Committee, was 
subsequently approved by the full House under suspension by voice vote. 
It has also been endorsed by national associations representing 
students and institutions of higher education.
  I ask unanimous consent that a letter from Dr. Stanley O. Ikenberry, 
president of the American Council on Education, be printed in the 
Record following my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. JEFFORDS. Mr. President, the House measure is now being held at 
the desk and is available for immediate action by the Senate. It has 
been cleared on the Republican side of the aisle. Unfortunately, due to 
objections from the other side of the aisle, we are unable to consider 
it.
  I want to take this opportunity to discuss the provisions of this 
legislation and the need to move expeditiously on it. This legislation 
does two things:
  First, it permits individuals to consolidate all their student 
loans--both Federal Direct Loan Program [FDLP] loans and Federal Family 
Education Loan Program [FFELP] loans--into a FFELP consolidation loan. 
Under current law, students who have both direct and guaranteed loans 
may only consolidate them into an FDLP consolidation loan administered 
by the Department of Education.
  The problem is that FDLP consolidation is not an option right now. 
Since August 26, the Department has suspended its consolidation program 
in an effort to deal with the backlog of 84,000 applications which had 
piled up prior to that time.
  Second, it assures that students and their parents will enjoy the 
full benefits of the educational tax credits contained within the 
Taxpayer Relief Act of 1997 by excluding these tax credits from 
consideration when student financial need is being assessed.
  Let me talk for a moment about why it is important to offer a loan 
consolidation option to those students who, right now, have nowhere to 
turn. The student loan consolidation program allows students to 
consolidate multiple student loans into a single loan that has several 
repayment options. The benefits of consolidation include the 
convenience of making a single monthly loan payment. In addition, the 
repayment options can reduce monthly payments. For many young families, 
these loans reduce their monthly payments enough to allow them to 
qualify for a mortgage for their first home.
  In my view, we need to make every possible effort to assure that 
consolidation is a benefit to students--not just another obstacle 
course. A New York Times article about the series of problems which has 
plagued the FDLP consolidation program operated by the Department of 
Education under contract with Electronic Data Systems Corp. brings to 
life the individuals whom this legislation is trying to help.
  Consider the following account regarding Shannan Elmore:

       It seemed like a simple enough thing to do: consolidate 10 
     different Government-sponsored college loans due over 10 
     years into one jumbo loan payable over 25, slashing the 
     monthly payment to $350 from $448. That was one of the last 
     things standing between Shannan Elmore and mortgage approval 
     for the house--the one whose concrete foundation her husband 
     had proposed in front of--that she wanted to build near 
     Boulder, CO. But Mrs. Elmore, a 30-year-old chemist who 
     graduated in May 1996 with a master's degree and $43,000 of 
     debt, said it took eight months for the Electronic Data 
     Systems Corporation to do the paperwork--far too long to 
     satisfy the mortgage lender. During those months, Mrs. Elmore 
     said, she called frequently only to be put on hold--for as 
     long as 45 minutes--and received one promissory note missing 
     the very page her lender needed to see. She said she was 
     still trying to clear up a loan that E.D.S. thinks it paid 
     off twice and for which it is double-billing her. The Elmores 
     eventually qualified for a mortgage, but for a different 
     house.

  Mr. President, I ask unanimous consent that the full text of the 
article, which appeared in the New York Times on October 1, 1997, 
appear in the Record following my remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 2.)
  Mr. JEFFORDS. Mr. President, Department of Education officials have 
been working diligently to resolve the problems with the consolidation 
program and have indicated that it will reopen by December 1. I believe 
we would all welcome seeing the program back on its feet. In the 
meantime, we need to give students another option right now.
  We also need to help alleviate the pressure on the direct 
consolidation loan program which will inevitably occur when it 
reopens--only to face the pent-up demand built up over a 3-month 
period. Prior to the shutdown, applications were running approximately 
12,000 per month.
  This legislation is intended to provide immediate relief to students 
and is designed specifically for that purpose. It modifies the current 
FFELP consolidation program to assure that loan subsidies are 
maintained, to provide for the same interest rate in effect for FDLP 
consolidation loans, and to protect borrowers against discrimination.
  The bill does not, nor is it intended to, address every issue which 
has been raised with respect to the loan consolidation provisions of 
the Higher Education Act. In anticipation that these issues would be 
fully debated and addressed in next year's reauthorization of the act, 
the consolidation provisions of this legislation will expire on October 
1, 1998.
  Finally, this legislation also includes important provisions dealing 
with the calculation of student aid under the Higher Education Act.
  The Taxpayer Relief Act of 1997 contained two educational tax credits 
designed to help students and their families pay for the rising cost of 
higher education. Under current law, the need analysis formula will 
consider students and their parents who receive the tax credit as 
having greater resources to pay for college, thereby reducing their 
eligibility for student financial aid. As a result, students and their 
families will find their financial aid reduced and that the amount they 
expended for higher education remained relatively unchanged by the 
educational tax credits.
  If the change in the need analysis formula included in this 
legislation is not made, approximately 69,000 individuals will lose an 
estimated $120 million in student financial aid.
  I do not believe that this needed relief for students should be 
further delayed, and I urge my colleagues to withdraw their objections 
so we can get this measure to the President.
  Mr. President, I want to just please urge those who are opposing the 
consideration of this bill to at least take the time to fully 
understand the ramifications of their failure to allow this bill to 
come up. I am sure that when they do so, they will recognize that this 
is not something which should be left undone before we leave here this 
fall.

[[Page S11535]]

                               Exhibit 1

                                    American Council on Education,


                                      Office of the President,

                                 Washington, DC, October 28, 1997.
       Dear Senator: I write on behalf of the undersigned to 
     express our strong support for S. 1294, the ``Emergency 
     Student Loan Consolidation Act of 1997.'' This urgent 
     legislation contains two important provisions, each of which 
     provides significant benefits for students.
       First, the bill amends the student aid need analysis 
     section of Title IV to exclude from parental or student 
     income the amount of any tax credit claimed under the 
     ``Taxpayer Relief Act of 1997.'' This is an essential 
     conforming change that is necessary to fulfill the intent of 
     framers of the tax bill regarding the Hope Scholarship and 
     Lifetime tax credits.
       Second, the bill provides temporary, but much-needed, 
     relief for tens of thousands of borrowers whose access to 
     Direct Consolidation loans has been limited due to the 
     problems experienced by the Department of Education in 
     implementing the Consolidation program. While we hope the 
     Department will soon eliminate the massive backlog of 
     applications, and that it will be able to accept and process 
     applications soon, it is important to provide additional 
     consolidation options for borrowers who desperately need help 
     now. S. 1294 will provide several significant borrower 
     benefits:
       The bill allows borrowers to consolidate their student 
     loans not only through the Direct Consolidation program, but 
     also through the lender of their choice in the Federal Family 
     Education Loan Program (FFELP).
       It lowers the interest rate on FFEL Consolidation loans, 
     and sets a maximum cap on interest at the same rate as is 
     currently in effect for Direct Consolidation loans.
       It equalizes the treatment of certain interest exemption 
     benefits for all borrowers by extending the Direct 
     Consolidation program's treatment of these exemptions to the 
     FFEL Consolidation program.
       The bill provides adequate non-discrimination provisions 
     that go beyond current law in FFELP in limiting lender 
     discretion.
       We respectfully request that you join us in supporting this 
     important legislation, which provides a broad array of much-
     needed student benefits.
     Sincerely,
                                             Stanley O. Ikenberry,
                                                        President.
       On behalf of the following:
       American Council on Education.
       American Association of Community Colleges.
       American Association of State Colleges and Universities.
       Association of American Universities.
       National Association of Graduate and Professional Students.
       National Association of Independent Colleges and 
     Universities.
       National Association of State Universities and Land-Grant 
     Colleges.
       United States Public Interest Research Group.
       United States Student Association.
                                                                    ____


                               Exhibit 2

                [From the New York Times, Oct. 1, 1997]

  Dropping the Ball in Juggling Loans; a Lot of Fumbles by E.D.S. in 
                        Processing Student Debt

                        (By Carol Marie Cropper)

       Dallas, Sept. 30.--It seemed like a simple enough thing to 
     do: consolidate 10 different Government-sponsored college 
     loans due over 10 years into one jumbo loan payable over 25, 
     slashing the monthly payment to $350 from $558. That was one 
     of the last things standing between Shannan Elmore and 
     mortgage approval for the house--the one whose concrete 
     foundation her husband had proposed in front of--that she 
     wanted to build near Boulder, Colo.
       But Mrs. Elmore, a 30-year-old chemist who graduated in May 
     1996 with a master's degree and $43,000 of debt, said it took 
     eight months for the Electronic Data Systems Corporation to 
     do the paperwork--far too long to satisfy the mortgage 
     lender.
       During those months, Mrs. Elmore said, she called 
     frequently only to be put on hold--for as long as 45 
     minutes--and received one promissory note missing the very 
     page her lender needed to see. She said she was still trying 
     to clear up a loan that E.D.S thinks it paid off twice and 
     for which it is double-billing her. The Elmores eventually 
     qualified for a mortgage, but for a different house.
       Mrs. Elmore is one of tens of thousands of recent graduates 
     who have endured months of red tape as E.D.S. has struggled 
     during the last year to fulfill its contract with the 
     Education Department to run the Government's four-year-old 
     effort to gain control of the nation's student loans. The 
     delays have resulted in a Congressional hearing, prompted 
     calls for legislation and given a black eye to both the 
     Education Department and to E.D.S., the giant computer 
     services company that is based in the Dallas suburb of Plano.
       At the hearing, held Sept. 18, Marshall Smith, Acting 
     Deputy Secretary of the department, testified that it had 
     taken E.D.S. almost five months, on average, to complete each 
     loan consolidation, creating a backlog of 84,000 
     applications. To give E.D.S. time to catch up, the department 
     ordered it to stop accepting new consolidation requests in 
     August.
       This very public stumbling has put expansion of the 
     Government's so-called direct student loan program in 
     jeopardy. Republicans who opposed the Clinton 
     Administration's 1993 effort to move student loans away from 
     banks and into the hands of the Education Department are back 
     in force.
       ``What we said in '93 has come home to roost,'' said 
     Representative Howard P. McKeon of California, chairman of 
     the subcommittee of the Committee on Education and the Work 
     Force that held the recent hearing. Critics of the program 
     said that it was doomed to create inefficiencies and 
     bottlenecks.
       Under the direct-loan program, student loans are issued by 
     the Government, instead of by banks or other private lenders. 
     The program is supposed to simplify life for students, who 
     often have to borrow from more than one bank and then keep 
     track of loans that are sold to lenders in other parts of the 
     country.
       The program is also supposed to trim Government 
     administrative and interest expenses paid to lenders in the 
     separate student loan operation in which repayment is simply 
     guaranteed by Washington. And it provides students with more 
     lenient repayment methods--allowing them to pay based on 
     their income. The direct program has proved popular with 
     students: it now represents about $20 billion in outstanding 
     loans, about 16 percent of the total student debt, and is 
     being used by 36 percent of all students borrowing for 
     college expenses. E.D.S. issues the direct loans and oversees 
     their consolidation.
       To help ease the consolidation logjam--and, not 
     incidentally, slow the direct program's forward motion--
     critics of Government lending have scheduled a committee vote 
     Wednesday on a measure that would allow students to 
     consolidate loans through a bank even if one or more of the 
     loans had been issued by the Government. That option is not 
     currently available to them. If the measure is approved, it 
     would go to the full House for consideration.
       Both E.D.S. and the Education Department say the logjam 
     results from an unexpectedly large influx of consolidation 
     applications and from a surprising amount of complexity in 
     the process. E.D.S. said it had based its winning bid for the 
     contract on department specifications that had forecast much 
     less work. The department said it expected 7,000 to 8,000 
     applications each month; the actual rate was 12,000 a month.
       But analysts that follow E.D.S., along with an executive of 
     the Maryland company that previously held the contract, 
     suggest another explanation--that an E.D.S. eager to win 
     business may have underbid the job in 1995 by underestimating 
     how many workers would be needed. E.D.S. has had to add 77 
     customer service representatives to the 100 it originally 
     assigned to the contract, and last year it replaced the 
     managers running the project.
       Education Department officials acknowledge that they do not 
     have the expertise to guide such a complicated computer 
     effort. ``A lot of the problems we run into with government 
     is we don't block and tackle correctly,'' Thomas Bloom, 
     inspector general for the department, testified at the Sept. 
     18 hearing. The General Accounting Office, the Congressional 
     watchdog, has repeatedly questioned the department's 
     technical ability to handle financial aid information.
       George Newstrom, an E.D.S. corporate vice president for 
     government contracts, said the company did not improperly 
     underbid. ``We don't do that,'' he said E.D.S. would have had 
     enough employees to do the work if the Government's estimates 
     had been correct, he said.
       But E.D.S. has acknowledged that it miscalculated on other 
     contracts that were bid around this time. In August, E.D.S. 
     said that it had re-evaluated profits related to about a 
     dozen contracts booked in 1994 and 1995, lowering the 
     numbers. The changes cost the company $80 million in 
     pretax income.
       Investor concerns over those errors combined with 
     disappointing quarterly earnings to drive E.D.S.'s stock from 
     a 52-week high of $63.375 last October to $35.50 today. The 
     company is in the middle of a revamping that will shed 8,500 
     of its 100,000 jobs.
       E.D.S. dismissed at least one of the managers responsible 
     for the troubled contracts, according to Myrna Vance, 
     E.D.S.'s corporate vice president for investor relations.
       Mrs. Vance said the student loan account was not on the 
     problem list in August. It is too early to tell whether the 
     need to assign additional service representatives will mean 
     lower profits there, she said.
       The company's February 1995 bid to the Education Department 
     was submitted at a time when, analysts say, E.D.S. was in a 
     period of flux and managers were especially eager to win 
     contracts.
       E.D.S. was still adjusting to bruising competition from 
     I.B.M., which had barged onto its turf in 1991 with 
     aggressive bids for contracts that had long gone to the Texas 
     company. Also, top E.D.S. management was distracted by the 
     company's planned 1996 spinoff from the General Motors 
     Corporation, which had bought the company from its founder, 
     Ross Perot, in 1984. The spinoff would remove E.D.S. from 
     G.M.'s protective wing, leaving it to stand or fall on its 
     own.
       E.D.S., long the industry leader in handling computer 
     services for big clients, finished 1995 with $12.4 billion in 
     revenue, up from $10 billion the year before. But according 
     to a Merrill Lynch analyst, Stephen T. McClellan, the company 
     was finding it increasingly difficult to keep up the double-

[[Page S11536]]

     digit earnings growth it had come to regard as its due. 
     Worse, I.B.M. was gaining on E.D.S. for total contracts won 
     and would roar past in 1996.
       It was in this atmosphere that E.D.S. prepared its $162 
     million bid to issue and consolidate direct loans over a 
     five-year period. The bid was at least 50 percent lower than 
     the one submitted by the Maryland company that had been doing 
     the job, the CDSI/Business Applications Solutions unit of 
     Computer Data Systems Inc. E.D.S. soon won a second five-year 
     contract, worth $378 million, to service the loans.
       Thomas A. Green, president of the CDSI unit, said that his 
     company had already started to see a surge in interest in the 
     direct-loan program--and the Education Department should have 
     know that. ``We were sending out applications all the time, 
     so it was clear that the popularity of the program was 
     growing,'' Mr. Green said. ``They weren't blind-sided at what 
     it was going to be when they took over,'' he said of E.D.S.
       Mr. Green also said his company was never as backlogged as 
     E.D.S. has been. He said CDSI consolidated 144,000 loans in 
     the 22 months between January 1995 and November 1996, when it 
     finished its work. The average consolidation took 65 to 70 
     days, he added.
       That compares with an average of 142 for E.D.S., according 
     to Mr. Smith, the Education Department official. E.D.S. has 
     processed about 54,000 loans since taking over last 
     September, he told the House panel.
       One of those affected by the delays is Robyn Higbee, who 
     says she went back and forth on the phone for six months to 
     consolidate two of her husband's law school loans totaling 
     $18,500. Mrs. Higbee struggled with this as the family moved 
     from Virginia to California, her husband studied for the bar 
     exam and started a new job, the couple bought their first 
     home and she gave birth to a baby who required heart surgery.
       ``It was just something that was totally unnecessary,'' 
     Mrs. Hibgee, 25, said of the loan complications.
       Randolph Dove, a spokesman for the company in its 
     Washington-area office, while not familiar with the details 
     of Mrs. Higbee's and Mrs. Elmore's cases, said that E.D.S. 
     regretted the difficulties any students have had. ``We've 
     been working very hard and have a lot of people dedicated to 
     resolving this,'' he said.
       Over all, E.D.S. has recovered from its dry spell in 
     winning contracts. I.B.M. won $27 billion in new business 
     last year, compared with E.D.S.'s $8.4 billion, according to 
     Greg Gould, a computer services analyst at Goldman, Sachs, 
     but this year E.D.S. has already won or is close to signing 
     $16.4 billion worth of contracts. Also, gross margins are up 
     for the work E.D.S. managers are bringing in--25 percent 
     rather than the 16 percent on contracts in 1994 and 1995, Mr. 
     Gould said. And top management has increased its control of 
     underlings who may have been tempted to bid too low to win a 
     contract, he added. ``There's that winner's curse,'' he said. 
     ``You want to win and you just lower your price until you win 
     the contract.''
       The prognosis for direct student loans is murkier. E.D.S. 
     expects to have the kinks out of its system and its backlog 
     erased by Dec. 1, Mr. Dove said. Students can then start 
     applying once more for consolidations, he said.
       But the concern over the logjam is undercutting the 
     Government's plans to expand the program. Representative 
     McKeon, who introduced the legislation now before the 
     education committee, concedes that there are not enough 
     opponents of direct loans to kill the program outright. But 
     his bill would at least end the Government's monopoly over 
     consolidation that restricts all students who have any direct 
     loans.
       For E.D.S.'s part, Mrs. Vance said that the publicity would 
     not have much impact on the company's prospects. ``One 
     contract is not going to set a trend or be a deterrent for 
     new business,'' she said.
       The Education Department, however, is considering whether 
     to cancel the $378 million contract with E.D.S. for servicing 
     the loans. Such a move could come because applications for 
     new loans are, oddly enough, now running below expectations. 
     A cancellation would not be related to the problems with the 
     consolidations, a department spokesman said, adding that 
     another company's servicing contract is also in jeopardy.
       But even some of the lawmakers who mostly blame the 
     Education Department for the program's troubles are asking 
     whether E.D.S. should be punished by being docked part of its 
     pay. Representative Peter Hoekstra, Republican of Michigan, 
     said he might favor doing that.
       Even without that penalty, however, E.D.S. will feel some 
     pain, Mr. Hoekstra said, adding, ``I wouldn't want to be 
     identified as the vendor that forced the Federal Government 
     to shut down consolidations in the direct-loan program with a 
     backlog of 84,000 kids.''

  Mr. JEFFORDS. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BYRD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________