Speeches & Floor Statements
Posted on July 24, 2013
I think the senator from Maine, the Independent senator from Maine, probably said it best when he observed on the floor and in private conversation that if you took four or five of us and said forget that you are elected to public office, here is a problem to be solved, we would have come up with something similar to the solution as that of the president, the House of Representatives, and the bipartisan proposal on the floor today. This is a very good solution on a very big problem that affects millions of families and about 9 million undergraduate students who are headed to college this year.
The bipartisan proposal makes it cheaper, simpler, and fairer for students going to college. It makes their loans more certain, because it locks in a rate for the life of the loan. It ends the political football game which we play every other year, it seems, on student interest rates and solves the problem permanently.
It is based upon an idea recommended by President Obama, passed by the House of Representatives, and endorsed by the bipartisan group that has been working on it. I wish all of the major problems that came before us could be solved in this way. As far as cost goes, it is a big difference. Two-thirds of all federal loans are undergraduate loans. There are about 11 million borrowers who will take out about 18 million loans, because students take out more than one loan.
For all of the undergraduate loans, about two-thirds of the loans, the rate of the loan will be cut about in half, which means if you get a loan this year at a 3.86-percent rate, that is the rate that is locked in for the entire life of the loan. It is simpler and fairer because there is a single rate for all undergraduates. Before, we had one rate for a subsidized loan and another rate for the unsubsidized loan. That is confusing. It was unfair, because 80 percent of the lower income students who had the subsidized loan also had an unsubsidized loan. So now everybody who shows up at the University of the Tennessee and borrows money, if they are undergraduates, all of their loans will have the same rate.
It is fair to taxpayers because we asked the Congressional Budget Office to comment on what it costs the government to borrow the money and administer the loan, take into account the cost, and try to come as close to zero as possible to the cost of issuing loans for the taxpayers. They have done that.
It is fair to students because we also asked the Congressional Budget Office to do the same thing for students. They said, we are loaning more than $100 billion a year – over $1 trillion over 10 years – so we said help us find a formula that comes as close to zero as practical so we do not overcharge students and make money on the backs of students. They came within seven-tenths of 1 percent in their estimates, which is only an estimate, and for all practical purposes that is a rounding error. That is a good-faith effort to get to zero in terms of fairness to the taxpayers and students.
But I would want to say to those who suggest it is not fair to students, let's keep in mind a few things. First, thanks to Senator Harkin and many of the Democratic members of the Senate, there are caps on the loans. So if rates go up too high, there is a limit on how high they can go. Second, there is, as has been mentioned, the income repayment plan which means that under the existing law today, if you take out a student loan and then you get a job, you only have to pay back about 10 percent of your disposable income. That is not all of your income, that is after you subtract your living expenses and your taxes, about 10 percent of what is left. If that is not enough, after paying it back over 10 or 20 years, depending on whether you have a public or private sector job, the government forgives it. So there is that cap on there as well.
Then there is the interest subsidy. About 40 percent of the loans are subsidized for lower income students, which means the government, the taxpayer, pays the interest while you are in college. So if you are a low-income student at the University of Tennessee, you take out a loan, the government will pay your interest the whole time you are in college.
Then there is the Pell grant. We spend about $35 billion a year of taxpayer money on Pell grants which go to low-income students. So a student at the University of Tennessee may have a Pell grant of up to about $5,500 or so. They might have a Hope scholarship in the state another $3,000. The tuition at the University of Tennessee is about $8,000 or $9,000. At the community college it is about $3,000 or $4,000. So you can see there is relatively a lot of financial aid out there before students borrow these low-rate student loans that taxpayers are making available to 9 million students at a rate of 3.86 percent for undergraduates.
Then there is one other aspect in which this is favorable to students; that is, the accounting system that we use. I have heard some say the government is making money on the backs of students. Let me try to put that in the simplest form I can. All we are doing with the proposal today is resetting the rates, a very simple bill with a few pages. It is on top of a student loan system with a lot of cash going in and out of it, $100 billion going out this year in new loans, maybe about as much coming back in, being repaid from old loans. There are two ways of accounting for that cash back and forth to determine whether it benefits the taxpayers or whether it benefits the students.
Under the law, we have something called the Federal Credit Reform Act, which says the taxpayers are benefiting to the tune of about $185 billion over 10 years. That is correct. That is exactly what it says. Not from what we are voting on today but for the underlying system that already exists.
But the Congressional Budget Office has said that is not the way they recommend measuring how we count the cost to the government of loaning money. To be specific, the Congressional Budget Office says the Federal Credit Reform Act estimates do not provide a comprehensive measure of what federal programs actually cost the government, because they do not take into consideration the market risk.
CBO says that adopting a fair value approach would provide a more comprehensive way to measure the cost to the federal credit programs and would permit more level comparisons between those costs and the costs of other forms of federal assistance. The Congressional Budget Office says: We already use that fair value approach, which includes taking into account the market risk with such things as the International Monetary Fund, the IMF, the Troubled Asset Relief Program, the bailouts, as we called them in 2008. CBO uses those with Fannie Mae and Freddie Mac.
In other words, the nonpartisan group we rely on to advise us about money says that if we actually use the right accounting tools, the current student loan system benefits students to the tune of about $95 billion over the next 10 years, not taxpayers. So there is another benefit to students. It is not true that under the recommended form of evaluating the cost to the government that taxpayers come out better than students.
One other thing I would like to say -- or two other things. One is, I would like to compliment those who have worked on this. My colleague Senator Harkin, who is chairman of the education committee here in the Senate, argued forcefully for caps. I congratulate the president for including this idea in the budget and forcefully supporting it.
I congratulate the House of Representatives. I suppose it is not lost on anyone the Senate is run by Democrats and the House is run by Republicans. This is a bipartisan proposal. I like the sound of that. I think that shows we can get results done when we keep our eye on the ball.
I especially compliment Senator Burr, Senator Coburn, Senator Manchin, Senator King, and Senator Carper for working carefully on this, and Senator Durbin for his leadership in putting this together.
As most speakers have said, it is true that we have a larger question before us. Do we need to make some changes in student loans? It is a lot of money -- $100 billion a year. That is a lot of money. We need to make sure that it is available in the right way and that students aren't borrowing too much.
Right now, if you are 20-year-old and you show up at the University of Tennessee in Knoxville and you want $5,500, you get it. The university can't say to you: I am sorry, Lamar, we don't think given your circumstances you are going to be able to pay that back in 10 years. I can say: Give me my money.
This is what the law says. Maybe we need to take a look at that and we need to be careful about our facts. The Federal Reserve, for example, says that 70 percent of borrowers with student loans today -- we are in the year 2012, in the fourth quarter -- have a balance of less than $25,000. Seventy percent of all student loans at the end of last year had a balance of less than $25,000. Forty percent had a balance of less than $10,000.
The trend is going in the wrong direction. Some students are borrowing too much money. But the average undergraduate loan debt is about $25,000 -- that is the average debt -- and the undergraduate student can't really borrow more than $31,000, and that is two-thirds of the loans.
So while there may be some problems with the student loan program -- and I, for one, think some students borrow more than they should -- we have 6,000 institutions out there, from the Nashville Diesel College, to Harvard, to Notre Dame, to the University of Tennessee, and we need to be careful that we understand exactly what the problem is, that we focus in on it, we don't apply a lot of mandates from Washington, and that we work with the colleges and universities. We need to find those universities, such as Tennessee Tech University, where they have a very low level of student loans and others where they may have loan rates that are too high. We need to make sure students don't saddle themselves with too much debt.
But when we have a 20-year-old in Knoxville showing up who is entitled to $5,500 in loans for a community college tuition that only costs $3,000 and he or she can put the other $2,500 in his or her pocket and the community college can't say no, well, that is one of the reasons many community colleges have gotten out of the loan business -- because they think that is wrong for the student. If this is the case, then we in the Senate ought to look at that. Senator Harkin and I are committed to looking at student loans in the reauthorization of the Higher Education Act.
For today, if the Senate does what I hope it does, this will be a victory for students. It makes loans cheaper, simpler, fairer, and more certain. It stops this annual business of political football with the student interest rates. It gives students a low interest rate that they can lock in over time and a cap at the top so that if rates spiral through the roof, student loans won't spiral through the roof. It is done in the context of a larger system that includes Pell grants and interest subsidies for low-income students. If it were based upon an accounting system that is recommended by the Congressional Budget Office, it would tilt the whole program to the advantage of students to the tune of an additional $95 billion over the next 10 years.
I congratulate all those who have worked on it, from the bipartisan sponsors, to the Republican leadership in the House, to the Democratic president of the United States.
I hope that we adopt it by a big vote and that the 9 million students going to college this fall will have the advantage of planning their long-term futures with the lowest possible interest rate on 18 million student loans.
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