[Congressional Record (Bound Edition), Volume 150 (2004), Part 15]
[Extensions of Remarks]
[Pages 20031-20032]
[From the U.S. Government Publishing Office, www.gpo.gov]




            THE EMERGENCY LOAN ABUSE PREVENTION ACT OF 2004

                                 ______
                                 

                         HON. CHRIS VAN HOLLEN

                              of maryland

                    in the house of representatives

                      Tuesday, September 28, 2004

  Mr. VAN HOLLEN. Mr. Speaker, I am pleased to join the Ranking Member 
of the Education and Workforce Committee, Mr. Miller, and the Ranking 
Member of the 21st Century Competitiveness Subcommittee, Mr. Kildee, in 
introducing the Emergency Loan Abuse Prevention Act of 2004.
  A short time ago, this body voted 413-3 to stop the Department of 
Education from spending any of its fiscal year 2005 Appropriation to 
perpetuate the so-called ``9.5 percent loophole'' in the Federal 
student loan program. This antiquated and indefensible subsidy 
guarantees lenders a whopping 9.5 percent return on garden variety 
student loans while costing taxpayers nearly $1 billion this year. 
That's $1 billion that should be going to students and families trying 
to afford college--not to already profitable financial institutions.
  The Emergency Loan Abuse Prevention Act of 2004 picks up where the 
Kildee-Van Hollen Labor-HHS Appropriations amendment left off by 
putting an end to the 9.5 percent loophole--permanently. Moreover, it 
directs the savings from this needed reform to the woefully underfunded 
Pell Grant program, which has lost half its purchasing power over the 
last 20 years. It's a win for taxpayers who expect us to spend their 
money wisely, and it's a win for students who--in this era of double 
digit tuition increases--deserve all the help we can give them as they 
pursue their dreams of a college education.
  Mr. Speaker, in closing, I'd like to submit a copy of a recent 
Washington Post editorial on this issue for the record and note that 
the Government Accountability Office (GAO) yesterday released its final 
report detailing the urgent need to close this loophole immediately. I 
ask all of my colleagues on both sides of the aisle to work with us in 
the same bipartisan fashion as this House spoke a few weeks ago to pass 
the Emergency Loan Abuse Prevention Act of 2004 without delay. We have 
an obligation to our taxpayers and students to ensure that Federal 
education dollars are spent where they are needed most.

               (From the Washington Post, Sept. 10, 2004)

                          Student Loan Scandal

       There are bureaucratic errors, there is congressional 
     negligence--and then there are bureaucratic errors and 
     congressional negligence on a scale so vast that it is hard 
     to believe they can be accidental. The hundreds of millions 
     of dollars in unnecessary government payments to the student 
     loan industry in the past 18 months amount to such a scandal. 
     The loans in question, established in 1980, are guaranteed by 
     the government at 9.5 percent. Yet most students are paying 
     interest rates of 3.5 percent or less. The difference--all 
     taxpayers' money--is pure profit for the companies that have 
     taken advantage of a loophole in the law.
       According to a recent report by the Institute for College 
     Access and Success, a nonprofit education think tank, 
     Congress had actually intended to end in 1993 the 9.5 percent 
     loan guarantee, one of many programs that provide incentives 
     for institutions to lend to students. In May 2003, one 
     company, Nelnet Inc., wrote to the Education Department to 
     confirm its intention to expand its holdings of old loans 
     with the 9.5 percent interest rate. Nelnet received no answer 
     from the department for a year, during which time the 
     department continued paying the company. In June of this 
     year, the department replied inconclusively--at which point 
     the company's stock price climbed 20 percent. Although Nelnet 
     is the largest holder of loans guaranteed at 9.5 percent--and 
     its holdings of such loans have increased by 818 percent 
     since January 2003--it is only one of many such lenders. 
     According to a preliminary Government Accountability Office 
     report, commissioned by Representatives Chris Van Hollen (D-
     Md.) and Dale E. Kildee (D-Mich.), 37 lenders receive 
     payments for loans with guaranteed interest rates of 9.5 
     percent, at a government cost of $1 billion annually, and the 
     volume of such loans is rising.
       Why wasn't the loophole shut long ago? Education Department 
     officials argue strenuously that only a two-year regulatory 
     process could have done so, and they didn't initiate one, 
     they say, because they thought Congress would deal with it. 
     Congressional Republicans say they expected to deal with the 
     problem in a comprehensive higher education bill, but that 
     has failed to pass (and in any case the proposed language 
     would not have ended all the payments). Yet, other solutions 
     could have been found: In the wake of revelations about the 
     scale of the payments, the House yesterday passed an 
     amendment to an appropriations bill, offered by Mr. Van 
     Hollen and Mr. Kildee, that would close the loophole 
     completely, albeit temporarily. (Of course, there is no 
     guarantee it will become law.) And one former Education 
     Department general counsel has written to the secretary of 
     education, Roderick R. Paige, arguing that the loophole could 
     have been closed immediately if officials had wished to do 
     so.
       There could be other explanations for their reluctance. One 
     is that the president of Nelnet, Don R. Bouc--who has called 
     for the loophole to be shut and the money to be better used--
     is well-connected enough to have been appointed to Mr. 
     Paige's advisory committee on student financial assistance. 
     Here is another: According to a report in the Chronicle of 
     Higher Education, Nelnet is the second-largest contributor to 
     congressional campaigns in the student loan industry, beaten 
     only by industry giant Sallie Mae. Over the past 18 months, 
     the student loan industry has contributed about $750,000 to 
     the 49 members of the House Committee on Education and the 
     Workforce, of which $136,000 has gone to the committee 
     chairman, Representative John A. Boehner (R-Ohio), and 
     $175,000 to Representative Howard P. ``Buck'' McKeon (R-
     Calif.), chairman of the subcommittee on higher education. 
     Mr. Boehner's spokesman vehemently denies any connection 
     between the contributions and the issue and maintains that 
     the committee's bill would have fixed the problem, which was 
     mentioned in the president's latest budget. Still, it is 
     difficult to understand, given the sums involved, why neither 
     Mr. Paige nor Congress made this a higher priority.

[[Page 20032]]

       For nearly a decade we have argued that Congress should 
     reduce subsidies for banks that lend to students, and instead 
     expand the direct-loan program, which provides about a 
     quarter of student aid--or else reform the system to make it 
     harder to manipulate. This scandal provides an excellent 
     reason to look again at these questions.

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