Students Are Not Advantaged By Expansion of Federally Supported Lending (Sen. Judd Gregg)

When we structured the arrangement between the direct student lending and the private lending back in the 1990's when Senator Kennedy (D-Mass.) was Chairman of the Committee, there was considerable open dialogue about the fact that we were going to set an even playing field where we would allow the marketplace, essentially students and schools to decide who was going to win, who would be used more often -- direct lending or the private market? And that was the theory. And the Senator from Massachusetts and the Senator from Indiana at that time -- Senator Coats -- and I worked on this at great length and we worked out an arrangement that this was the way we were going to approach it.

But ever since then -- or at least in the last year -- there has been an attempt to tilt the playing field significantly towards direct lending. And to make the government the lender of first resort and last resort for most students, even though in most instances that has been rejected, both by the students and the education community.

This amendment is just an extension of that effort and is arguably an extremely expensive extension of that effort because even though the scoring rules may reflect a zero scoring -- and I am not sure it will -- but even if they did, you know that those rules don't adequately reflect the costs of the government participating in these types of lending programs.

And what we're doing now under this amendment is saying, not only do you have these base lending amounts that are available under direct lending, but you're going to be able to borrow up to the full cost of your education so it dramatically skews the system to favor direct lending and essentially to allow students, as has been pointed out by the ranking member on the Committee, to arbitrage that money, the parents to arbitrage that money, and encourages high-cost schools to become even more expensive.

One of the things we've seen is that there are appears to be a direct correlation between tuition going up at schools and lending -- federally supported lending and federal grants being increased. So the students are not usually advantaged by this expansion of direct lending and many times grants. It's, rather, the schools that are advantaged, especially high-end schools, who simply raise their tuition to absorb whatever new money is flowing in out of the federal treasury. It's become a fairly cynical game on the part of many academic institutions in this country, but it is exactly what's happened.

And so this amendment really needs a hearing, and it needs to be vetted very aggressively in Committee because it basically, in my humble opinion, right up front undermines three of the basic principles that we should be trying to resist occurring around here. First, is that we not unduly tilt the playing field in favor of direct lending over private lending, or private lending or direct lending. And last week's amendment, which took a significant amount of money out of the subsidy for private lending, I think, was a good step in not allowing private lending to get a good advantage. This amendment should not be passed because if gives direct lending an unfair advantage.

Secondly, it should not create an atmosphere where students are pushed towards higher-cost schools and where parent and students are allowed to basically game the system through arbitraging funds, borrowing at one rate, lending at another rate, assuming that they had some other sources of revenue.  And, thirdly, it should not encourage this process which is occurring out there of giving significant resources without any discipline to higher education facilities so that they can then raise their tuition at the expense of students who don't have these type of resources to pay these loans or who don't qualify for those loans, and end up with education becoming more expensive because the higher education in institutions see that there's easy money out there to capture and they don't have to be disciplined in managing their educational systems.

So there are a lot of issues here that this amendment raises, a lot of issues. I know that some on the other side's basic goal is to move the whole thing to direct lending. Unfortunately, that's become the cause celebre around here. Much like universal health care, we'd like to have universal federal lending policies around here. But the private sector plays a significant and constructive role in making college affordable to American students and has, and the original agreement which was reached in the 1990's makes the playing field balanced and fair is the way we should be proceeding. We shouldn't be putting in place, out of the clear blue sky, a brand-new, major direct lending program which will undermine some of the major tenets and efforts that we've undertaken in higher education and lending.

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