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Guthrie Statement: Markup of H.R. 3221, the Student Aid and Fiscal Responsibility Act

I appreciate the opportunity to speak, but I regret that my comments will be in opposition to the bill before us.

I was named Ranking Member on the Higher Education, Lifelong Learning, and Competitiveness Subcommittee earlier this year with great excitement. After all, workforce development and higher education were key priorities for me as a State Senator, and I was anxious to get to work on bipartisan reform initiatives here in Congress.  In the state legislature, I frequently worked across party lines to accomplish important legislation, and I am very disappointed that Ranking Member Kline and I were not given an opportunity to have input on this important bill.

Unfortunately, this first bill out of the gate is one that I simply cannot support. I think it’s the wrong approach to student financial aid – both because of its insistence on an expanded federal role and because of its unfair “cut and spend” approach that pits one group of students against another.

We’re told that switching to 100% direct lending will save taxpayers close to $90 billion over the next ten years. We hear a lot of talk about “lender subsidies” and “savings” to the federal treasury, so I’d like to talk for just a moment about the difference between “savings” and “earnings.” I think students deserve to know exactly where these so-called savings are coming from.

Under the FFEL program, the federal government establishes the interest rate paid by students. The government also establishes a market-based rate of return for lenders – they can never earn more than this amount, and when they do, they pay the extra back to the federal government.  In today’s low interest rate environment, the federal government is actually earning money from FFEL lenders. Even under the emergency legislation enacted last year, the federal government is making a profit.

What our colleagues on the other side of the aisle have discovered is that the federal government can earn even more money through the Direct Loan program, where students pay interest and fees to the government directly. The federal government has a lower cost of borrowing funds than lenders do in the private sector.

Because the Treasury borrows with the full faith and credit of the U.S. government, we pay a lower interest rate on our debt. Of course, as taxpayers, we’re all on the hook for that debt. That means when we borrow from other countries around the world, we get a lower interest rate. By charging students an interest rate higher than what we owe foreign nations, the government makes a profit. That means low- and middle-income students overpaying on their loans are financing the new entitlement spending in this legislation.

Let me give you an example. Today, the federal government’s cost of funds is just over 5%. Some students are paying 5.6% on their loans; others are paying 6.8%; still others are paying 7.9%, and believe it or not, some borrowers are paying as much as 8.5%. And those interest rates for students will stay the same even if the federal cost of funds falls to 4%, 3%, 2%, or even less.

It’s true that the majority is moving to a variable interest rate on some loans for some borrowers. This may help – some. But the simple fact remains that major savings are generated in this legislation by charging borrowers more than it costs the federal government to make the loan. And I, for one, am not comfortable with the idea of the federal government acting as a profit-making bank.

Student loan financing is a complicated issue and there is even far more to it than what I just explained. But my point is this: There’s also more to it than just the quote-unquote “lender subsidies” that the majority talks about.

There are real questions about the consequences of adding tens of billions to the national debt each year. There are real questions about eliminating a role for private sector originators and guarantors and outreach providers and other participants. And, yes, there are real questions about whether it’s fair to pay for school construction and pre-K education and even Pell Grants by overcharging students on their loans.

Republicans aren’t opposed to financial aid reform. We’ve been talking about bringing down college costs for a long time, and we’re anxious to simplify and streamline our financial aid system. We’ll fight as hard as anyone to provide a stable source of capital for students and families.

As someone who spent the last 18 years working at my family’s small business, I know firsthand how critical it is for the private sector to continually innovate, save costs, and make things better. These are the things we need to encourage as we reform the financial aid system. Career bureaucrats simply cannot and will not think of ways to improve students’ lending experiences, address individualized or regional needs, or help prevent defaults.

I believe we can make college more affordable without a complete federal takeover of student lending. The private sector adds value to the program, and I’m eager to pursue commonsense approaches that retain choice, competition, and innovation. Thank you.