Speeches & Floor Statements
Posted on September 23, 2009
I would like to say a few words about Federal student loans. President Obama said the other day, in what I thought was a very perceptive comment, that he understood the health care debate and all its intensity is a proxy for a larger debate, and that is about the role of government in our society. What I and many Republicans believe and, I think, many Independents and Democrats, as well, in the State of Tennessee, and I suspect across the country, is that we have suddenly seen too many taxes, too much spending, too much debt, and too many Washington takeovers. The President says, and he is correct to an extent with this, that some of these Washington takeovers were not his fault, were not his doing. I suppose he would say that about some of the bank takeovers and the insurance company takeovers. I am not so sure about the takeover of the automobile companies or the takeover of the farm bonds or the proposal to takeover health care. But here is a voluntary takeover that is absolutely unnecessary, is unwise, and the American people should pay attention to this. This goes to the center of what the President said. If health care is a proxy for a debate about the extent to which the American Government ought to be involved in our society, then the proposal by the President to take over the entire student loan program and move it from the private sector into the government is a perfect example of what we ought not to be doing. Let me speak first to the dimensions of this program. The United States has the best system of higher education in the world. One of the greatest aspects of it, one of the greatest contributors to its quality, is that we have a generous amount of Federal dollars which permit about half or more of our students to either get a Federal grant, which we usually call Pell grants, or a Federal student loan which follows them to the institution of their choice. So unlike our our elementary and secondary schools, your Pell grant -- your grant going all of the way back to the GI bill in 1944 -- can follow you wherever you go. That choice and that competition and that money have helped to create not just some of the best colleges and universities in the world but virtually all of them. Most observers agree on that. The higher education system today is 6,000 institutions. These are the universities of North Carolina and Tennessee. That is what we might think of first, but there are also community colleges, the 2-year schools. There are also nonprofit colleges. There are also the religious institutions -- Notre Dame and Brigham Young and many others. So there are 6,000 institutions. Last year, 4,400 of those 6,000 institutions used the regular student loan program. That is the one where you go to the bank, usually your community bank or local bank, and you get a student loan. And 1,600 schools, or about one-fourth, used the direct loan program, which was put in at the time I was Secretary of Education about 20 years ago, and you just go to the U.S. Department of Education and get your money. On the private side of it, which is what 3 out of 4 students choose, there are 2,000 lenders that participate in the program. This year, there are nearly 19 million loans to students and parents and 14 million of them are in the regular student loan program, 4.5 million through the government. There was $86 billion of loans made. So the regular student loan volume through the private lenders was about $64 billion; the direct loan volume was $22 billion. So all in all outstanding, $617 billion of volume for both programs, and the President has said we are going to take all of that and put it in the U.S. Department of Education. So what his proposal is, if you are one of the 14 million students today who are getting their student loans from their local banks, starting in January you are out of luck. You better line up outside the U.S. Department of Education with the other 19 million people who want a student loan and hope they can provide you with the same sort of service your community bank or lending institution or nonprofit organization in your area provides you today. There is a lack of evidence to show that the U.S. Department of Education can do a better job of making loans than banks can. I used to work at the U.S. Department of Education. I was the Secretary. It is one of the smaller departments in government. The people there know a lot about education, but none of them really is running for banker of the year. Arne Duncan is President Obama's Education Secretary. He is one of his best appointments. I would much prefer seeing him in Memphis working on charter schools or in Denver trying to find ways to pay outstanding teachers more or trying to help create a better system of colleges and universities or community colleges instead of trying to manage the problem of, how do I grant $100 billion in new loans to 19 million people every single year? How do I replace 2,000 private lenders? Let me give you an example of what a private lender might do. In Tennessee, we have EdSouth. This is a nonprofit provider. Here is what they do. They had five regional outreach counselors to canvass Tennessee to provide college and career planning, financial aid training, college admissions assistance, and financial aid literacy. They made 443 presentations at Tennessee schools through college fairs, guidance visits, and presentations. They worked with 12,000 Tennessee students to improve their understanding of the college admissions and financial aid process. They provided training to over 1,000 school counselors so those counselors could work better with their students. They distributed almost 1.5 million financial aid brochures to Tennessee students and families. Will the U.S. Department of Education start providing those services, or will the 19 million students who want student loans simply line up outside the U.S. Department of Education or one of its offices somewhere and apply for a loan? I think I know the answer to that question. According to the Department of Education, it costs them about $700 million a year to administer the loans they make today. That is for one-quarter of all the loans. They estimate they can make those same loans to 19 million students with about the same amount of money. I doubt if that is true, which brings me to the point of the savings -- the alleged savings of this program. Senator Gregg and I -- the Senator from New Hampshire, who is the former chairman of the Budget Committee, the ranking member now -- talked about the alleged savings in moving all of these loans from the lending institutions that make them to 19 million students today, to the U.S. Department of Education. Senator Gregg received a letter from the Congressional Budget Office on July 27. I ask unanimous consent to have that letter printed in the Record. Senator Gregg basically asked: Is it true that if we stop making loans through private and nonprofit lenders whereby the Federal Government guarantees the loans and pays a regulated subsidy to the lender -- if we stop that and start making all of them through the government directly, will we save $87 billion? And the short answer -- if you want the long answer, the letter is available -- the short answer is no, you do not save $87 billion; you are likely to realize $47 billion in savings over the next 10 years. Instead of saving $87 billion, we save $47 billion. Then we have to deduct the administrative costs. Remember, instead of making some of the loans, the Department of Education is going to make 19 million loans. The Department estimates it might cost it $7 billion over the 10 years to do that. Others think it might cost $30 billion. So the real savings -- the real savings are either $47 billion or more like $20 billion or $23 billion in savings over 10 years. In order to do that, of course, we are going to have to raise the Federal debt. We are going to have to borrow $1 billion a year for the next 5 years. So at a time when we are concerned that we are adding $9 trillion to the debt over the next 10 years, we are going to add another half trillion over 5 years so we can make student loans instead of doing it through private institutions. Here is the real clincher. When you press and say: In order to make these loans, what is the real reason you think you can do this if the savings aren't really $87 billion but they are more like $47 billion or more like $23 billion over 10 years? They say: Well, the real reason is the government can borrow money cheaper than the private banks can. That is true. The government can borrow money at a quarter of a percentage point, and then it loans it to the students at 6.8 percentage points. Well, my first point would be that I don't think the government ought to be making a profit by overcharging students for their student loans and then turn around and take credit for starting new programs. What the government is actually going to be doing is charging a student who has a job and is trying to get a student loan -- is going to say: OK, we are going to borrow the money at one-quarter of 1 percent and loan it to you at 6.8, and then we are going to take that money and pay for your Pell grant or pay for someone else's Pell grant. In other words, they are going to overcharge the student to make the Congressman look good. That is what we are doing. We are going out and announcing all of these programs. So we are spending $87 billion, when it is really between $23 and $47 billion -- that is the amount we really have -- and we make that money by overcharging the students. At the very least, if we are going to take all of these loans into the government, we ought to reduce the interest rate so we don't overcharge the students. I see the Senator from Oklahoma. I am going to defer to him and welcome him to the floor. But I hope, as we think about the issue the President so accurately described -- he said: The health care debate is really a proxy for the role of government in our society. He is exactly right about that. And while some of the Washington takeovers may not have been avoidable at the beginning of the year, there is no reason in the world why Washington should take over 19 million student loans, eliminate 2,000 lenders, stop students on 6,000 campuses from having a choice in competition, and say: The government is the best banker in America; line up outside the Department of Education, all 19 million of you, in January and get your student loan. So I am thinking of introducing an amendment that is called a truth-in-lending amendment if this legislation were to pass, and it would say to every one of the 19 million students: Truth in lending -- beware. Your government is overcharging you so that your Congressman and your Senator can take credit for starting a new program. I yield the floor.