Statement of Congressman Sanders on 5/26/2005 regarding: Government Reform Hearing on Student Loan Programs

Statement of Congressman Sanders on 5/26/2005 regarding: Government Reform Hearing on Student Loan Programs

Mr. Chairman, thank you for holding this hearing to focus attention on the federal loan programs and, more broadly, on the state of financial aid for our nation's college students.

Before we turn to the loan programs that are the subject of our hearing today, I think it is very important for us to pull back and look at where we are in funding higher education generally. And let me be very clear. I, for one, think that education - including higher education - should be treated as a right not a privilege. That is why I am very troubled by the fact that the United States trails nearly every industrialized country in making higher education affordable. In fact, it wasn't until 1998 that many European countries even allowed fees to be charged for higher education and still they vigorously debate whether or not to impose costs of even $1,000 or $2,000 per year. Scandinavian universities still charge no tuition!

Meanwhile, annual tuition costs in the U.S. average about $20,000 for 4-year private schools and over $5,000 for 4-year public colleges in 2004-2005. In the past year alone in the United States tuition has increased an average of 10.5 % at 4-year public institutions, 8.7% at 2-year public institutions, and 6% at 4-year private institutions.

What's worse - and this is the 500-pound elephant in the room today - thirty years ago, federal grants accounted for more than 70 percent of all federal student aid. Today, loans account for 70 percent of all federal student aid, while grants make up just 22 percent!

That means more and more students and their families are being saddled with massive debt to finance college education. The typical student graduates today with more than $19,000 in federal loan debt - compared to $12,100 in 1992-93. One tragic effect of this is to discourage students, especially low-income and first-generation students from going to college in the first place. What a loss for these young students and what a loss in potential for our workforce and our country.

Amazingly, President Bush's FY 2006 budget attacks - zero's out - three of the most successful programs to deal with this tragedy. His budget completely eliminates funding for the GEAR UP, Upward Bound and Talent Search programs, which will result in about 1.3 million students losing the support they need to make it to college.

Another tragic effect of this shift to skyrocketing college expenses and heavy debt-financing is that far too few students who enter our colleges and universities ever graduate. Only 63% of students who begin their college careers as full-time freshman at four-year colleges and universities earn a bachelors' degree within 6 years. The numbers are even lower for low-income students, who graduate at a rate of 54%, compared to high-income students, who graduate at a rate of 77%.

These are the results we get for our chronic neglect of higher education. Amazingly, despite these trends, for the 5th year in a row this year President Bush broke his 2000 campaign promise to provide a $5,100 maximum Pell grant scholarship, proposing this year to increase the maximum Pell scholarship by a mere $100 (to $4,150), or 2.5 percent over last year, barely even keeping pace with inflation. The maximum Pell grant scholarship is worth nearly $800 less today than it was in 1975-76 after adjusting for inflation!

I, for one, think it would be irresponsible to talk about our federal student loan programs in a vacuum, ignoring this very bad trend in higher education financing.

But we are here today to talk about the federal loan programs. I have to admit, when I looked at the numbers to prepare for this hearing, I could hardly believe what I was reading.

My understanding is that of the two main student loan programs that provide essentially the same loans and interest rates to students, one costs American taxpayers billions more every year than the other. The Federal Direct Loan Program is, by any measure, a huge success. It secures loan capital at a lower rate, eliminates the middleman (lenders), and cuts out billions in unnecessary subsidies to banks. The other - the Federal Family Education Loan Program - has taxpayers underwrite and subsidize loans issued by private lenders and banks. These loans bear virtually no risk for private banks, yet have an assured rate of return and are guaranteed against default by the government:

• According to President Bush's 2006 education budget, for every $100 spent on student loans, the U.S. government pays $12.09 of subsidy on government-guaranteed private loans and only 84 cents for direct loans! The CBO has come to a similar conclusion.

What else do we need to know? My opinion is that, to the extent we do need to talk about the loan component of student aid, the money we are spending on student loans should be going to students, not to banks. It's that simple.

I am an original cosponsor of bipartisan legislation, introduced by George Miller and Tom Petri, that would give universities an incentive to switch programs (from private lender program to federal direct loans), by allowing them to use the savings the government gets from direct loan program to increase their students' Pell Grants by an estimated $1000 per student. The CBO score of this Student Aid Reward (STAR) Act (HR 1425) shows that increasing Direct Loan volume from 25% to 40% over the next 10 years will provide $17 billion in additional funds for Pell grant scholarships-at no additional cost to taxpayers. One question I have for all of our witnesses today is a very simple one: Why not? Why wouldn't we do this?

According to the President's FY 06 budget, the direct loan program has saved taxpayers over $10 billion in subsidy costs from 1992 to 2004. Why wouldn't we encourage its growth? Why wouldn't we reinstate the original intent of Congress and plan for the Direct Loan Program to ultimately replace entirely the subsidized, guaranteed private loan program - the sooner the better?

I certainly cannot imagine how we, as stewards of the nation's treasury, could work in any other direction and I look forward to hearing our witness's answers to these important questions.

Thank you.

http://bernie.house.gov/statements/20050531175748.asp