Letter to The Honorable Gene Dodaro, Acting Comptroller General, U.S. Government Accountability Office
Kennedy, Miller Call for GAO to Monitor Administration's Efforts to Ensure Continued Access to Federal Student Loans
In a letter sent yesterday, Senator Edward M. Kennedy (D-MA) Rep. George Miller (D-CA) asked the U.S. Government Accountability Office to monitor the administration's efforts to ensure that families continue to have access to federal student loans at a time when volatile credit market conditions are making it harder for some lenders to access the capital needed to finance their student lending activity.
Kennedy and Miller, the chairmen of the House and Senate Education Committees, are the authors of a new law, the Ensuring Continued Access to Student Loans Act (H.R. 5715), that that would provide the Department of Education with additional tools, in addition to those in current law, to help address liquidity constraints facing some lenders and give families hit hard by the struggling economy more flexibility when borrowing federal student loans. Over the past few months, the lawmakers have been urging U.S. Education Secretary Margaret Spellings to fully prepare contingency plans that would protect students' access to federal student loans in the event that a significant number of lenders decided to withdraw from their federal student loan program.
"Although we are hopefully that the overall credit market conditions will soon improve, the Congress recently enacted legislation to make sure that students and parents continue to have access to all the federal student loans for which they are eligible, regardless of financial market conditions," Kennedy and Miller wrote. "We believe that this information will be critical as we monitor both the implementation of this new law and this administration's efforts to protect the best interests of students and families working hard to pay for college."
Specifically, Kennedy and Miller asked the GAO to provide information on the Department's efforts to prepare the lender-of-last-resort program and to help schools transition from the Federal Family Education Loan Program (FFELP) into the Direct Loan Program. In addition, the lawmakers asked GAO to monitor the administration's planning for the possible purchase of FFELP loans using capital from the U.S. Treasury, a temporary authority that was granted to the Secretary under H.R. 5715, and to recommend additional actions that the federal government should take to safeguard federal student loan access at no new cost to taxpayers.
The full text of the chairmen's letter to GAO is below.
May 15, 2008
The Honorable Gene Dodaro
Acting Comptroller General
U.S. Government Accountability Office
441 G Street, NW
Washington, DC 20548
Dear Mr. Dodaro:
In recent months, the crisis in the U.S. financial markets has made it more difficult for some lenders in the federally guaranteed student loan program to secure capital to finance their lending activity. While these disruptions have had an impact on some lenders, they so far have not negatively affected students' ability to access federal loans. Although we are hopeful that overall credit market conditions will soon improve, the Congress recently enacted legislation, the Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715), to make sure that students and parents continue to have access to all the federal student loans for which they are eligible, regardless of financial market conditions.
We have also urged Secretary Spellings to fully prepare the tools already available to the Department of Education to ensure uninterrupted access to federal student loans in the event that a substantial number of Federal Family Education Loan Program (FFELP) lenders withdraw from the program. In particular, we have asked the Secretary to prepare to implement the lender-of-last-resort program by requiring the nation's 35 guaranty agencies to fulfill their statutory obligation to serve as such lenders. H.R. 5715 provides the Secretary with the additional authority to implement such a program on a school-wide basis - if needed.
This new law also gives the Secretary the temporary authority to purchase FFELP loans from lenders with federal capital in the event that lenders are unable to meet the demand for loans through the private capital markets alone; the Secretary would only be authorized to purchase these loans in such a manner that would carry no cost for the federal government.
In addition, we have asked the Secretary to take steps to ensure its plans to facilitate and expedite a school's transition from the FFELP to the William D. Ford Direct Loan program on either a temporary or permanent basis can be immediately executed, should a school so desire, and to ensure that the program is fully equipped to handle any increased demand for federal student loans.
As the 2008-2009 academic year quickly approaches and families begin exploring their options for paying college costs, we request that the GAO timely provide us information about the following:
* To what extent are the Department of Education and the nation's 35 guaranty agencies prepared to make lender-of-last resort programs fully operational, at a moment's notice? Has the Department made necessary arrangements to advance capital from the U.S. Treasury, in the event such capital is needed?
* What steps are the Departments of Education and Treasury and the Office of Management and Budget taking to prepare for the potential purchase of FFELP loans with capital from the U.S. Treasury?
* What steps is the Department of Education taking to help schools transition from the FFELP into the Direct Loan program and prepare the program to increase its loan volume? What factors could affect the Department's ability to prepare the program for increased use?
In addition, we request that the GAO recommend additional actions that the Congress, the Departments of Education and Treasury, and other Federal agencies should undertake, without imposing additional cost to the taxpayers, to ensure continued access to Federal student loans during this time of economic stress.
We believe that this information will be critical as we monitor both the implementation of this new law and this administration's efforts to protect the best interests of students and families working hard to pay for college. If you have any questions, please call Jeff Appel of the House Committee on Education and Labor at XXX-XXXX, and Emma Vadehra of the Senate Committee on Health, Education, Labor and Pensions.
GEORGE MILLER EDWARD M. KENNEDY
House Committee on Education and Labor Senate Committee on Health, Education, Labor and Pensions