[Congressional Record Volume 154, Number 39 (Friday, March 7, 2008)]
[Senate]
[Pages S1722-S1724]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    CREDIT MARKET AND STUDENT LOANS

  Mr. KENNEDY. Mr. President, I wish to take a few moments to discuss a 
growing problem for students and families struggling to pay for 
college.
  Americans are anxious about their economic futures. They are seeing 
volatile markets, disappearing jobs, home foreclosures, rising debt, 
and declining benefits. Now the crisis in the credit market, stemming 
from irresponsible lending practices in the mortgage industry, may 
impact their ability to secure student loans at fair rates so their 
children can go to the college of their choice.
  We all know that student loans are critical for millions of students 
and parents trying to pay for college. In the last 20 years, as the 
cost of college has tripled, more and more students are relying on 
students loans to afford a college education.
  In 1993, less than half of all graduates had to take out loans, but 
in 2004, nearly two-thirds had to take out loans to finance their 
education.
  This chart shows how more students must take out loans to finance 
their education. In 1993, if you look at the students taking out loans, 
and then here in 2004, you can see that as the cost of college has 
risen and grant aid has not kept pace, more and more students have to 
turn to loans. This difference has made students borrowing in the 
private sector--in many instances at exorbitant rates. It is this area, 
in

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the private sector, that is at risk. The federal student loan system is 
not affected in the same way. I will say more about that in my remarks.
  Last year, we passed legislation that increased grant aid and ensured 
that Federal loans were cheaper for students by cutting interest rates. 
We also ensured that no graduate would have to pay more than 15 percent 
of their income in monthly loan payments and that those who enter 
public service will have their loans forgiven. But these benefits will 
be meaningless if these students cannot access the loans they need to 
be able to afford the college of their choice.
  In recent weeks, the credit market crisis has made it more difficult 
for student lenders to secure capital. This has increased the cost of 
lending, causing some lenders to pull out of the student loan market 
and causing those operating outside the Federal loan program to cut 
back on lending to high-risk borrowers.
  Due to the attractiveness of the Federal guarantee in the federally 
subsidized program--so far--other lenders are stepping up to fill in 
the gaps in that program. And the interest rates in that program are 
capped so students are protected from inflated interest payments.

  But students who need to go beyond the Federal loan program will have 
a tougher time finding lenders, and their rates will go up in the fall. 
Schools are beginning to sound alarm bells and telling students to get 
their loans now because they may be less available in the fall.
  We must take action to ensure that students have the resources they 
need to attend college. We must ensure that the backstops built into 
the Federal loan program, designed to protect students and parents from 
the kind of credit market disruptions we are seeing today, are ready to 
be implemented.
  One of those backstops is the Direct Loan Program. It allows students 
and parents to borrow directly from the Federal Government without 
going through a bank. The Secretary of Education uses funds from the 
U.S. Treasury to make the loans. This program does not rely on capital 
from the private financial markets, so it is completely insulated from 
the disruptions the market is experiencing today.
  Current law allows the Secretary to advance capital to designated 
Lenders-of-Last-Resort so they can step in if students are having 
trouble finding loans through other banks.
  These programs are already in the law. And nearly 2,000 colleges are 
already either using or signed up to use the Direct Loan Program. Last 
week, I wrote to Secretary Spellings urging her to take any necessary 
action to ensure that schools that rely solely on private banks can 
easily access the Direct Loan Program and to ensure that procedures are 
in place to set up lenders of last resort.
  Mr. President, I ask unanimous consent to have printed in the Record 
the letter to Secretary Spellings at the end of my remarks.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  (See exhibit 1.)
  Mr. KENNEDY. Mr. President, we must also ensure that students who are 
borrowing outside the Federal loan program are protected. A good first 
step is to make sure parents and students are aware of their options. 
According to the Department of Education, many students who turn to 
private loans--high-cost loans that are not subsidized by the Federal 
Government--are not taking advantage of the grant aid and low-interest 
loans that they are eligible for under Federal programs. This is 
unacceptable. We need to make sure college financial aid advisers are 
giving students the information they need to maximize student aid and 
get the best deals on their loans.
  We are currently in conference with the House on the Higher Education 
Act. That bill will ensure that we do just that. It will help students 
make the most of the college aid they are eligible for by requiring 
lenders to disclose--on private loan applications and the documents 
they sign before a loan is made--that students may be eligible for 
grants from the Federal Government, their State, and their college, as 
well as lower-cost loans from the federally subsidized program. We also 
require additional counseling by the financial aid experts for students 
regarding their student aid options.
  For families who need additional loans beyond the Federal loans while 
they are in school, we must ensure they can access loans at affordable 
rates in the private markets. We are working with our colleagues in the 
Banking Committee, led by the committee's chair, Senator Dodd, on this 
issue. I also plan to offer legislation that will expand the 
eligibility for low-cost Government loans for these students.
  In the coming weeks, the Committee I chair, which deals with 
education issues, will convene hearings so we can hear directly from 
those affected. We will also continue to monitor the Department of 
Education's efforts to implement the existing safeguards in the Federal 
programs.
  In today's uncertain economy, Congress has an obligation to provide a 
steady hand and to shore up programs on which Americans depend. Nothing 
can be more important than ensuring that families can afford a college 
degree.

                               Exhibit 1

                                Washington, DC, February 28, 2008.
     Hon. Margaret Spellings,
     Secretary of Education, U.S. Department of Education, 
         Washington, DC.
       Dear Secretary Spellings: As you know, the U.S. capital 
     market has been experiencing stress as a result of the sub-
     prime mortgage crisis and investor uncertainty about the 
     condition of the economy. Recently, certain student loan 
     lenders have encountered difficulties in accessing the 
     capital market to finance their lending activity. While these 
     disruptions have had an impact on some lenders, they so far 
     have not negatively affected students' ability to access 
     federal loans. Some lenders have expressed concern about 
     their ability to continue to make loans through the Federal 
     Family Education Loan Program (FFELP), but others are 
     anticipating increasing their student loan business in 
     response to changes in the FFEL marketplace. As you know, 
     there are several tools already in statute that protect 
     against any unforeseen disruptions in the private capital 
     markets. We urge you to take any steps necessary to ensure 
     that these options are readily available so that recent 
     activity in the credit markets does not adversely affect 
     students' ability to secure federal student loans in a timely 
     manner
       Since the capital market disruptions began, we have been 
     closely monitoring the situation and its potential impact on 
     the Federal student loan programs. We and our staffs have 
     held in-depth discussions, and will continue meeting with, 
     the many stakeholders involved in delivering Federal college 
     loans to students and families, including schools, lenders, 
     guaranty agencies, secondary markets, investment bankers, and 
     officials of various Federal agencies, including the 
     Departments of Education and Treasury. Through these 
     discussions we have gained a detailed understanding of how 
     the current difficulties in the credit markets might affect 
     some segments of the FFELP industry, especially those lenders 
     that have relied on the auction rate securities market.
       While we are hopeful that overall credit market conditions 
     will soon improve, subsequently easing the constraints some 
     in the FFELP industry currently face, it is only prudent to 
     prepare now to ensure that these conditions do not negatively 
     impact students' ability to access Federal student loans. As 
     we have seen far too often, shocks in the credit and 
     financial markets come as a surprise, leaving those affected 
     little time to react.
       Having plans in place and operational now will help ensure 
     that all stakeholders, including institutions and the federal 
     government, can respond to any potential loan access problems 
     with the least possible delay for students, families, and 
     schools. More importantly, such plans will provide students 
     and families with the assurance that they will continue to be 
     able to obtain Federal student loans to finance their 
     education.
       The Department of Education needs to be prepared to use the 
     tools the Congress has provided to ensure that all eligible 
     students continue to have uninterrupted and timely access to 
     Federal student loans, in the unlikely event that stress in 
     the credit market leads a significant number of lenders to 
     substantially reduce their activity in FFELP.
       First, the Department of Education should update plans to 
     implement a lender-of-last resort program in the instance 
     that there are widespread student loan access problems and 
     take all available steps to ensure these plans can become 
     operational quickly, if necessary. As you know, under 
     existing law FFELP guaranty agencies are obligated to serve 
     as lenders-of-last resort to avert any possible problem in 
     access to student loans, thereby providing a nationwide 
     network of backstop lenders. Further, you have the authority 
     to advance federal funds to guaranty agencies to provide them 
     with loan capital if needed. While such a program has not 
     been previously implemented for the FFELP, the Department had 
     established such a plan in 1998, when some FFELP lenders were 
     then indicating that they might withdraw from the guaranteed 
     loan program. Updating

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     these plans now will help ensure that deploying such a 
     contingency can he done at the first sign of any problems 
     experienced by schools or borrowers in obtaining Federal 
     student loans from a FFELP lender.
       Second, the Department of Education should take action to 
     ensure that the Direct Loan program is fully prepared to 
     respond to any unanticipated increase in demand for the 
     program. As you know, the Direct Loan program does not rely 
     on private lenders and therefore will not be affected by the 
     changes in the credit market. Based on our discussions with 
     Department officials, financial aid officials from schools 
     currently participating in the Direct Loan program, and 
     others, we are confident that the program could help 
     alleviate any potential problem that borrowers or schools may 
     face should FFELP lenders continue to face difficulties and 
     withdraw from the program. The Department needs to take steps 
     to ensure its plans to facilitate and expedite a school's 
     transition from the FFELP to the Direct Loan program on 
     either a temporary or permanent basis can be immediately 
     executed, should a school so desire. In addition, it is 
     important for the Department to ensure that adequate capacity 
     exists to absorb any increases in additional loan volume.
       Finally, we understand that you will soon be corresponding 
     with colleges about the state of the Federal student loan 
     programs. We request that in such correspondence you make 
     readily available information on the option of participating 
     in the Direct Loan program and on lender of last resort 
     procedures.
       We are encouraged that the Department has begun to examine 
     these options, but we look forward to hearing about further 
     contingency plans that would allow the Department to act 
     immediately to ensure all students and families continue to 
     have access to federal student loans in a timely manner.
       We stand ready to provide you with any needed assistance 
     that you believe will be necessary in undertaking the two 
     important steps outlined above.
           Sincerely,
     Edward M. Kennedy,
       Chairman, Senate Committee on Health, Education, Labor, and 
     Pensions.
     George Miller,
       Chairman, House Committee on Education and Labor.

  Mr. KENNEDY. Mr. President, I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. SALAZAR. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

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