[Congressional Record Volume 153, Number 27 (Tuesday, February 13, 2007)]
[Senate]
[Pages S1914-S1915]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KENNEDY (for himself, Mr. Smith, and Mr. Durbin):
  S. 572. A bill to ensure that Federal student loans are delivered as 
efficiently as possible in order to provide more grant aid to students; 
to the Committee on Health, Education, Labor, and Pensions.
  Mr. KENNEDY. Mr. President, more than 40 years ago, Congress 
recognized the importance of a college education in opening the door to 
the American dream. We agreed then that no qualified student should be 
denied the opportunity to go to college because of the cost. Guided by 
that principle, we enacted the Higher Education Act of 1965.
  Times have changed since then. College education has become even more 
critical to success in the global economy. Yet, Congress has shamefully 
lost sight of this fundamental principle, especially in recent years.
  Today, 400,000 qualified students a year don't attend a four-year 
college because they can't afford it. The cost of college has more than 
tripled over the last twenty years, and vast numbers of families can't 
keep up. Twenty years ago, the maximum Pell Grant--the lifeline to 
college for low-income and first-generation students--covered more than 
half the cost of attendance at a typical four-year public college. 
Today, it only covers 32 percent.
  Yet each year, the federal government wastes billions of taxpayer 
dollars on subsidies to private lenders to do a job that could be done 
much more efficiently without these middlemen.
  At a time when students and families are pinching pennies more than 
ever to pay for college, we can't let this situation continue. We 
should use scarce tax dollars to help students, not banks.
  The system we created 40 years ago involved federally-guaranteed 
student loans made by private lenders, and it's now known as the 
Federal Family Education Loan Program, or FFEL. At that time, Congress 
wasn't sure lenders would be willing to loan money to students with no 
credit history, so we created a system with guarantees against default. 
Four decades later, student default rates are near an all-time low and 
private lenders hold over $100 billion in federal student loan volume. 
Federal guarantees and subsidies have made student loans the second 
most profitable business for banks, after credit cards. The stock price 
of the biggest lender, Sallie Mae, has skyrocketed from $3 to more than 
$40 in the last decade.
  In 1994, Congress finally recognized that we could give students a 
better deal and save billions of dollars by cutting out the middleman. 
We created the Direct Loan program, in which loans are issued directly 
to students, from the United States Treasury. The loans are serviced 
and collected under contracts with private companies, but there is no 
middleman making the loans.
  The Direct Loan program is much less expensive for taxpayers, because 
it provides loan capital at a lower rate than banks, and avoids 
billions of dollars in unnecessary subsidies to lenders.
  If we had gone to a system of 100 percent Direct Loans in 1994, the 
government would have saved over $30 billion since the program was 
created. Unfortunately, because of the lobbying of the private lenders, 
the FFEL program continues, and the Direct Loan program has never been 
allowed to compete on a level playing field.
  As a result, we continue to waste taxpayer money by paying an 
unnecessary middleman, we shield lenders from risk, and we continue to 
guarantee them a very profitable return.
  It's time to encourage serious competition in the college loan 
marketplace, and let students reap the benefits.
  Today, Senator Gordon Smith (R-OR), Congressmen George Miller (D-CA) 
and Tom Petri (R-WI) and I are proposing a bipartisan plan to do that. 
Our bill will increase student financial aid by squeezing billions of 
dollars in corporate welfare out of the student loan program.
  Our bill, The Student Aid Reward Act, will provide colleges and 
universities with grant aid to increase scholarships for their 
students. It is completely paid for by increased efficiency in 
delivering student loans. The bill encourages colleges to use the 
direct loans, which are cheaper for both the government and taxpayers, 
and allows them to keep half the savings to increase need-based aid. 
The Congressional Budget Office estimates that our plan will generate 
$13 billion in savings over the next 10 years from schools switching to 
the more efficient program. The bill would provide at least $10 billion 
for additional college scholarship aid at no additional cost to 
taxpayers.
  According to President Bush's 2008 education budget, student loans 
made through the more expensive FFEL program in 2007 cost $3 more for 
every $100 in loans than the same loans made directly from the 
Treasury. Yet, colleges and students have no incentive under current 
law to use the more efficient program.
  Our Student Aid Reward Act encourages colleges to choose the less 
expensive of the government's student loan programs.
  It requires the Secretary of Education to determine every year which 
loan program is more efficient. Schools are rewarded with additional 
scholarship funds for using the more efficient of the two programs. 
Competition will encourage both programs to improve the efficiency of 
their operations. Schools, students, and taxpayers will all benefit.
  Estimates based on the most recent Bush Administration budget 
indicate that under our plan, each college will receive an incentive 
payment equal to one and a half percent of the total amount borrowed by 
students at the college.
  In Massachusetts: students at Boston College will receive almost $1.4 
million in additional financial aid. Students at UMASS Amherst will 
receive $1.3 million more. Students at Springfield College will receive 
over $700,000 more.

[[Page S1915]]

Students at Emerson College would receive nearly half a million dollars 
more.
  For students nationwide, college will be more affordable for millions 
of young men and women at no additional taxpayer cost.
  Title IV of the Higher Education Act today is called ``Student 
Assistance''--not ``Lender Assistance.'' The federal student aid system 
was created to help students and families afford college. But in recent 
years, it has been corrupted into a system that lines the pockets of 
the banks. It's time to throw the private money lenders out of the 
temple of higher education. Scarce Federal education dollars should go 
to deserving students, not greedy private lenders.
  Mr. President, I ask unanimous consent that the text of the Student 
Aid Reward Act of 2007 be printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 572

       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 Aid Reward Act of 
     2007''.

     SEC. 2. STUDENT AID REWARD PROGRAM.

       Part G of title IV of the Higher Education Act of 1965 (20 
     U.S.C. 1088 et seq.) is amended by inserting after section 
     489 the following:

     ``SEC. 489A. STUDENT AID REWARD PROGRAM.

       ``(a) Program Authorized.--The Secretary shall carry out a 
     Student Aid Reward Program to encourage institutions of 
     higher education to participate in the student loan program 
     under this title that is most cost-effective for taxpayers.
       ``(b) Program Requirements.--In carrying out the Student 
     Aid Reward Program, the Secretary shall--
       ``(1) provide to each institution of higher education 
     participating in the student loan program under this title 
     that is most cost-effective for taxpayers, a Student Aid 
     Reward Payment, in an amount determined in accordance with 
     subsection (c), to encourage the institution to participate 
     in that student loan program;
       ``(2) require each institution of higher education 
     receiving a payment under this section to provide student 
     loans under such student loan program for a period of 5 years 
     after the date the first payment is made under this section;
       ``(3) where appropriate, require that funds paid to 
     institutions of higher education under this section be used 
     to award students a supplement to such students' Federal Pell 
     Grants under subpart 1 of part A;
       ``(4) permit such funds to also be used to award need-based 
     grants to lower- and middle-income graduate students; and
       ``(5) encourage all institutions of higher education to 
     participate in the Student Aid Reward Program under this 
     section.
       ``(c) Amount.--The amount of a Student Aid Reward Payment 
     under this section shall be not less than 50 percent of the 
     savings to the Federal Government generated by the 
     institution of higher education's participation in the 
     student loan program under this title that is most cost-
     effective for taxpayers instead of the institution's 
     participation in the student loan program that is not most 
     cost-effective for taxpayers.
       ``(d) Trigger to Ensure Cost Neutrality.--
       ``(1) Limit to ensure cost neutrality.--Notwithstanding 
     subsection (c), the Secretary shall not distribute Student 
     Aid Reward Payments under the Student Aid Reward Program 
     that, in the aggregate, exceed the Federal savings resulting 
     from the implementation of the Student Aid Reward Program.
       ``(2) Federal savings.--In calculating Federal savings, as 
     used in paragraph (1), the Secretary shall determine Federal 
     savings on loans made to students at institutions of higher 
     education that participate in the student loan program under 
     this title that is most cost-effective for taxpayers and 
     that, on the date of enactment of this section, participated 
     in the student loan program that is not most cost-effective 
     for taxpayers, resulting from the difference of--
       ``(A) the Federal cost of loan volume made under the 
     student loan program under this title that is most cost-
     effective for taxpayers; and
       ``(B) the Federal cost of an equivalent type and amount of 
     loan volume made, insured, or guaranteed under the student 
     loan program under this title that is not most cost-effective 
     for taxpayers.
       ``(3) Distribution rules.--If the Federal savings 
     determined under paragraph (2) is not sufficient to 
     distribute full Student Aid Reward Payments under the Student 
     Aid Reward Program, the Secretary shall--
       ``(A) first make Student Aid Reward Payments to those 
     institutions of higher education that participated in the 
     student loan program under this title that is not most cost-
     effective for taxpayers on the date of enactment of this 
     section; and
       ``(B) with any remaining Federal savings after making 
     Student Aid Reward Payments under subparagraph (A), make 
     Student Aid Reward Payments to the institutions of higher 
     education eligible for a Student Aid Reward Payment and not 
     described in subparagraph (A) on a pro-rata basis.
       ``(4) Distribution to students.--Any institution of higher 
     education that receives a Student Aid Reward Payment under 
     this section--
       ``(A) shall distribute, where appropriate, part or all of 
     such payment among the students of such institution who are 
     Federal Pell Grant recipients by awarding such students a 
     supplemental grant; and
       ``(B) may distribute part of such payment as a supplemental 
     grant to graduate students in financial need.
       ``(5) Estimates, adjustments, and carry over.--
       ``(A) Estimates and adjustments.--The Secretary shall make 
     Student Aid Reward Payments to institutions of higher 
     education on the basis of estimates, using the best data 
     available at the beginning of an academic or fiscal year. If 
     the Secretary determines thereafter that loan program costs 
     for that academic or fiscal year were different than such 
     estimate, the Secretary shall adjust by reducing or 
     increasing subsequent Student Aid Reward Payments paid to 
     such institutions of higher education to reflect such 
     difference.
       ``(B) Carry over.--Any institution of higher education that 
     receives a reduced Student Aid Reward Payment under paragraph 
     (3)(B), shall remain eligible for the unpaid portion of such 
     institution's financial reward payment, as well as any 
     additional financial reward payments for which the 
     institution is otherwise eligible, in subsequent academic or 
     fiscal years.
       ``(e) Definitions.--In this section:
       ``(1) The term `student loan program under this title that 
     is most cost-effective for taxpayers' means the loan program 
     under part B or D of this title that has the lowest overall 
     cost to the Federal Government (including administrative 
     costs) for the loans authorized by such parts.
       ``(2) The term `student loan program under this title that 
     is not most cost-effective for taxpayers' means the loan 
     program under part B or D of this title that does not have 
     the lowest overall cost to the Federal Government (including 
     administrative costs) for the loans authorized by such 
     parts.''.
                                 ______