STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - April 03, 2008)
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By Mr. KENNEDY (for himself, Mr. Sanders, Mrs. Murray, Mr. Dodd, Mr. Reed, and Mr. Levin):
S. 2815. A bill to amend the Higher Education Act of 1965 in order to increase unsubsidized Stafford loan limits for undergraduate students, provide for a secondary market for FFEL loans, allow for the in-school deferment of PLUS loans, augment the maximum Federal Pell Grant for the lowest income students, and expand the number of students eligible to obtain loans under the lender-of-last-resort program, and for other purposes; to the Committee on Health, Education, Labor, and Pensions.
Mr. KENNEDY. Mr. President, Americans are facing economic challenges at every turn. They see jobs disappearing, homes being foreclosed, debts soaring, and benefits worth less and less. Now families are finding that the loans they rely on to afford the high cost of college may also be at risk.
Some lenders have stopped making private student loans, and others have even temporarily stopped making loans under the Federal program. We can't allow problems in the credit market to prevent students from going to college.
We have been working with the Secretary of Education to take steps to see that all Federal backstops are in place and operational in order to protect students from these problems.
Today, I am introducing legislation for additional steps to protect students by reducing their reliance on loans, and by improving the existing Federal student loan programs to give them better terms and conditions.
The legislation does three things. It increases grant aid for the neediest students. It expands options for students and parents under the Federal loan programs so that fewer of them will have to turn to higher cost private loans. It takes steps to shore up the reliability of the current Federal loan programs so that families will have timely and reliable access to Federal loans.
Over 6 million students relied on Federal loans last year. It is essential to make sure this support is there for them when they need it. In the past 20 years, the cost of college has tripled, and more and more students are relying on student loans to afford a college education. In 1993, less than half of all graduates took out loans, but in 2004, nearly 2/3 did so.
The average U.S. student now graduates with more than $19,000 of student loan debt. As a result, they are under increasing pressure to give up lower-paying jobs and careers they may prefer, due to the burden of repaying their loan debts.
Legislation was enacted last year that increased grant aid and made Federal loans cheaper for students by reducing interest rates. We also provided that no graduates should have to pay more than 15 percent of their income in monthly loan payments, and that those who enter public service will have their loans completely forgiven. But these benefits will be meaningless if students cannot obtain the loans needed to gain a degree.
In recent weeks, the credit market crisis has made it more difficult for lenders to obtain capital for student loans. As a result, some lenders are leaving the student loan market and those operating outside the Federal loan program are cutting back on loans to high risk borrowers.
So far, because of the attractiveness of the Federal guarantee in the Federal loan program, other lenders are stepping in to fill the gaps in that program. Since the interest rates in that program are capped, students are protected from inflated interest costs.
But students who need to go beyond the Federal loan program will have a more difficult time finding lenders, and their rates will go up.
Also, parents who traditionally had various options for borrowing to finance college for their children are seeing those options disappear. Some no longer have access to low-cost home equity lines of credit. Others are being turned down for additional loans as they struggle to pay their own mortgages.
As I mentioned, we are already taking action to ensure that programs already in place to protect students and families from credit market disruptions are fully operational.
I have urged Secretary Spellings to make it as easy as possible for colleges and families to participate in the existing loan program that allows students and parents to borrow directly from the Federal Government, without going through a bank. This Direct Loan program uses Treasury funds. It does not rely on capital from the private financial markets, so it's insulated from the market disruptions now taking place.
I have also urged the Secretary to put in place a plan to activate the "Lender-of-Last-Resort'' program, which enables the Secretary to advance capital to designated lenders and guaranty agencies, so they can help students who are having trouble finding loans through other banks.
These programs are now in the law, and nearly 2,000 colleges are already signed up to use the Direct Loan Program.
We're also taking steps to help students and parents who must borrow outside the Federal loan program, since they are the ones most likely to be affected by the credit market decline.
Currently, however, many students and parents don't know about their Federal options. According to Department of Education estimates, between 40 and 60 percent of students who turn to high-cost private loans are not actually taking full advantage of Federal grants and loans first.
We're taking steps to correct that problem in the Higher Education Reauthorization bill that's in conference now.
But there is much more we can do to reduce families' reliance on high-cost private loans. The legislation I am offering today will increase access for students and families to low-cost Federal loans. It will also strengthen the backstops in the Federal program, to ensure students and families will continue to have access to Federal loans.
The legislation cuts back in several ways on the number of private loans that families have to take out:
It increases Pell Grant aid for the lowest income students.
It increases the amount that students can borrow under the Federal loan program.
It makes Federal loans for parents more attractive by enabling parents to defer payments on the loans while students are in college just as students can defer payments on their own loans.
It also takes steps to shore up the Federal loan program to ensure there are no disruptions in access for students.
It makes it easier for schools to use the ``Lender-of-Last-Resort'' program when students or schools have problems finding lenders.
It provides an additional backstop to give lenders access to the capital they need for new loans, if the situation worsens.
I will take a moment to describe each of these provisions.
The best way to help students and families afford college is to increase grant aid. More aid up front means fewer loans and less debt on graduation day. That is why the Democratic Congress delivered on our promise last year to raise the Pell Grant. The maximum grant will increase to $5,400 by 2012--an increase of $1,350 over the level at which it had stagnated under the current administration.
This increase in up-front aid means that students eligible for the maximum Pell grant will have to borrow $6,000 less in loans over the course of their college career.
The legislation I am introducing builds on that progress, and focuses on students who need it most. Currently, over 2.6 million students--half of all Pell Grant recipients--come from families whose income, under the Federal formula, makes them eligible for the maximum amount of Federal assistance because they are determined to be unable to contribute to their children's college bills. Still, after all grant aid, these families face an average unmet need of $5,600, which they are forced to borrow in order to pay for college. This bill brings additional assistance to these students, by increasing the maximum Pell Grant for these students by up to $750.
Because Federal grant aid has not kept pace with the rising cost of college in recent decades, many students have been forced to turn to loans. The bill helps students who still need to borrow for college by guaranteeing their access to additional low-cost federal loans, rather than forcing them to turn to the more expensive private loan market.
Currently, undergraduate students who are dependents of their parents can take out loans of between $3,500 and $5,500 annually, depending what year of college they're in. The total amount they can borrow is $23,000. Independent students can borrow about double that amount.
Consider what this means for a middle-class family in Massachusetts struggling to send a child to college.
Here is a family that makes $68,700--the median income in our State. On average, these families will spend $17,424 a year for college. Based on the federal formula, the parents are expected to contribute between $8,000 and $10,000 a year from their earnings with the rest to be obtained through grants and loans. After accounting for all federal, state, and institutional aid, this family still faces over $2,600 in unmet costs each year--on top of their expected family contribution. The estimate is conservative, because many parents don't have the $8,000-10,000 they're expected to contribute.
To make up the difference, many families can take out federal parent "PLUS'' loans at a 7.9 percent interest rate. If they don't qualify for such loans because of poor credit, their children may have to turn to higher cost private loans.
The bill increases eligibility for Federal student loans in order to give students a better, lower-cost option than relying on private lenders.
It allows undergraduates dependent on their parents to borrow up to $1,000 more a year. It tracks current law by allowing independent students to borrow twice that amount. It also allows students whose parents are not able to borrow under the Federal parent loan program because of poor credit to borrow an additional $2,000 per year.
In addition, the bill increases the total amount that students can borrow over the course of their college career. Dependent students will be able to borrow up to $29,500. Independent students, and students whose parents don't have access to PLUS parent loans, can borrow up to $57,500.
Further, the legislation makes federal parent loans more attractive. Currently, most parents have the option of borrowing low-cost federal loans--up to the cost of attendance--for their children. In the 2006-2007 school year, 600,000 parents borrowed approximately $8 billion in PLUS loans, and the average loan was $13,600.
Many parents in recent years have not taken advantage of PLUS loans, because they had other options, such as home equity lines of credit, or private loans with good terms and conditions. This year, for the first time in a decade, the number of PLUS loan borrowers declined--by about 160,000. At the same time, student and parent dependence on private loans has increased. In the 2006-2007 school year, over $17 billion in private student loans were used to finance higher education.
With the credit crunch making it harder and more expensive for parents to borrow from private sources, this legislation will make it easier for parents to obtain Federal loans. Specifically, it allows parents to defer payment on those loans until their children graduate from school--just as students are able to do under their own Federal loans.
This provision protects parents from having to make any payments over the next few years, and allows them to use that time to meet other financial obligations, such as getting their mortgages back on track.
In addition to these provisions that significantly reduce families' need to turn to the private loan market, the legislation also takes two important steps to strengthen the backstops in the Federal loan program, to ensure that students and parents can continue to have timely, uninterrupted access to Federal loans.
First, it makes it easier for students and schools to participate in the "Lender-of-Last-Resort'' program. Current law requires designated lenders to make loans to students who are having trouble finding a Federal student loan elsewhere. But the program requires individual students to demonstrate that they can't find a loan before they can turn to a ``lender of last resort.''
If the current market worsens, more lenders may stop making Federal student loans, and this ``lender-of-last-resort'' process will become untenable. Nationally, 18 million students are enrolled in colleges and universities. We can't require each of them to demonstrate they can't find another lender before using this safety net.
The legislation instead allows financial aid officers and colleges to make this determination on behalf of all their students, so that students can easily obtain a loan through a ``lender of last resort.'' Consider the difference this would make at state universities, some of which enroll more than 50,000 college and graduate students and generally rely on one or two primary lenders.
The Clinton Administration enacted such a policy in 1998--the last time lenders threatened to leave the program. The legislation requires the Secretary to make clear that colleges have this option should they need it.
Finally, many lenders who have announced they will not be able to make loans for this college year have had to make that decision because they cannot obtain capital for those loans through their traditional sources in the private financial markets.
Many of these lenders sell the loans they originate in order to replenish their capital and make new loans. But these so-called ``secondary markets'' have begun to close because of the credit crunch.
Some lenders can't find a buyer for their loans. They are stuck with the loans now on their books, and have no capital for new loans in the fall. Over the past month, this has caused some lenders to announce that they will stop making new Federal loans.
This legislation provides a back-up plan for lenders who need it, in case the private credit markets are unavailable to lenders. It allows the Secretary of Education to act as a ``secondary market of last resort,'' by buying the loans that lenders are currently holding on their books and cannot sell.
This will not cause students any greater complexity--under the program established by this legislation, student loans will continue to be serviced under the same terms and conditions that the borrower signed up for. The Department can contract with the same loan servicers that private banks use, and the transition will be seamless for borrowers.
We hope that these additional protections for students and families will not be needed. But given the uncertainties in the overall economy and the credit markets, Congress has an obligation to shore up programs on which millions of students heavily depend. Few things are more important than ensuring that families can afford a college degree for their children, and the goal of this legislation is to make that possible. I urge my colleagues to support it.
Mr. President, I ask unanimous consent that the text of the bill be printed in the RECORD.
There being no objection, the text of the bill was ordered to be printed in the RECORD, as follows:
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