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McKeon Statement: Hearing on “Increasing Student Aid through Loan Reform”

Education – especially a college education – is an engine that drives the American Dream.  I would like to see this committee do what it can to help those American Dreams come true.

And student loans are one tool that allows students and families to pursue that dream.

Today, we are going to hear about different student loan plans. We will discuss whether it’s better to have loans come directly from the government, or through other sources such as private lenders and non-profits.

I believe the American people have already made that choice.

In the Federal Family Education Loan program, which features a public-private partnership, there are more than 4,000 participating institutions. Students attending these institutions have received approximately $66 billion this year.

In the Direct Loan program, where the loans come directly from the government, there are roughly 1,700 institutions. Students attending these institutions have received approximately $22 billion this year.

This is clearly a case of schools “voting with their feet.” Much like the Secretary told us families would do when it comes to picking an affordable college, institutions have selected their loan program of choice.  They have moved to a program that provides the choice, flexibility, and options to make college affordable, thanks to that public-private partnership.

The Administration has argued that the FFEL program is “on life support,” and does not provide a stable source of capital. With all due respect, this is like arguing that the federal government should directly manufacture and sell cars because the Administration is now assisting Chrysler and GM.

Some in the Administration may want to fully take over the automotive industry, but I don’t think the American people would agree.

Let’s just consider the facts. Our nation is in the midst of a global economic meltdown. Our credit markets became paralyzed, and no one – not mortgage lenders, not small business lenders, not consumer lenders, and not student lenders – was able to secure credit to keep capital flowing.

The federal government stepped in with a temporary measure to restore liquidity. Just like it did for the entire banking and financial system.

But you don’t hear calls for the federal government to make all mortgages, or all small business loans, or all car loans. No, it’s only in the student loan market where political forces are taking advantage of economic peril to create a federal monopoly.

So to those who claim the FFEL program does not work, I would only ask you to look back on the last 40+ years before the credit crisis that crippled our entire financial system. The private sector is a stable source of capital – it’s one that has served millions of students and families for decades.

Instead of trying to keep private capital and innovation out of student lending permanently, perhaps we should be looking for ways to bring it back.

We’ve also heard a lot about lender subsidies and so-called waste in this program. So let me take just a moment to set the record straight.

This year, the federal government is expected to make a profit on the FFEL program. The only subsidies being paid are interest benefits so that low-income students do not accrue interest costs while they’re in school.

But on the whole, the FFEL program is actually returning money to the U.S. Treasury this year. In a way, that means lenders are subsidizing the federal government. And the Administration’s own budget clearly expects the programs included in the Ensuring Continued Access to Student Loans Act to continue to return money to the government. It seems to me that we should consider those programs as a viable alternative to a complete conversion to the Direct Loan program.

Finally, what about the 4,000 plus institutions across the country who have decided that the FFEL program works well for their students? Don’t they get a say in all of this? In 1993, when the Direct Loan program was created, it came about mainly because some institutions were not happy with the FFEL program and wanted another option.

If the more than 4,000 institutions currently in the FFEL program are happy with the program and wish to keep it, I think we should listen to their wishes just like we did in 1993 to the institutions who wished for change.  In that vein, I have several letters from financial aid officers from all around the country who want to keep the options available to them today through the FFEL program.

I would like these to be submitted into the record today.

Mr. Chairman, what’s best for schools, and the students they serve, seems to be lost in this debate. And I’m not the only one who thinks so.

This morning, Inside Higher Ed published an op-ed written by the director of financial aid at Tallahassee Community College. The article is called “Why I’m Sticking With FFELP,” and he begins by saying – quote – “But for all the talk about budget numbers and politics, the views of college financial aid administrators have been largely lost in the shuffle.”

I would also like to insert this article into the hearing record. I hope we’ll think about people like this financial aid director as the debate unfolds.

With that, I would like to thank our witnesses for appearing today, and I look forward to learning from them. 


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