Statements on Introduced Bills and Joint Resolutions

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - February 01, 2007)

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Mr. DURBIN. Mr. President, I rise today to urge my colleagues to support the Kennedy-Durbin ``Student Loan Sunshine Act.'

There is no question that having a college education is essential in today's job market. Over the course of a lifetime, a college graduate will earn over $1 million more than those with only a high school diploma.

In addition to the individual benefits of a college education, investing in and producing more college-educated Americans is vital to our nation's growth. Economists estimate that the increase in the education level of the United States labor force between 1915 and 1999 directly resulted in at least 23 percent of the overall growth in U.S. productivity.

However, paying for college is becoming increasingly difficult for students and their families. Tuition at four-year public institutions rose by 42 percent in the last five years, and more and more students are leaving college saddled with ever increasing debt burdens. According to the U.S. Department of Education, the average student debt has increased by more than 50 percent over the last decade. In 2004, college students graduated with an average of $17,400 in federal student loan debt, almost 45 percent more than students who graduated in 1993. When private loans are factored in, the average debt increases to more than $19,000.

As students and their families struggle to find ways to pay for higher education, more and more are forced to turn to private student loans in order to close the gap. Because these loans are not guaranteed or subsidized by the government, they often carry much higher interest rates.

According to The College Board, private student loans are now a $17.3 billion industry. Between the 2000-2001 and 2005-2006 school years, private student loans grew at an average annual rate of 27 percent, after adjusting for inflation.

As more students begin to rely on private student loans to help pay for college, some lenders and colleges are engaging in practices that do not appear to be in the best interests of the students. An article published in The New York Times revealed examples of incentives offered to colleges by student loan companies in order to be placed on a college's ``preferred lender' list.

An example cited in the article included an all-expense paid trip to the Caribbean for university officials and their spouses to attend an education ``summit' held at a luxury five-star beachfront resort. Between symposiums, forums and roundtable discussions on the importance of addressing the cost of higher education, guests could enjoy complimentary water and beach sports such as snorkeling, sailing, kayaking, sailboarding and volleyball as well as access to an 18-hole championship golf course, a 10-court tennis complex, two beachfront pools and a luxury spa. News of the trip garnered such a negative response from the public that the sponsor of the trip, Loan to Learn, ultimately cancelled the trip. Aside from all-expense paid trips, other examples of incentives include iPods that were given away at a financial aid administrators meeting and bonuses that are based on how much students borrow.

Colleges and universities should not be enticed to select ``preferred lenders' or take other actions related to the student loan program on the basis of factors that are irrelevant, or at best ancillary, to the primary interests of the students.

The Student Loan Sunshine Act protects students and parents from potential exploitation by private student loan lenders and lenders that offer gifts to schools as a way to acquire the school's loan business. It ensures that students and their families have all the facts and can feel confident that they're receiving the best deal on their college loan.

First, this bill puts a stop to inappropriate lender practices. Lenders are prohibited from offering any gift over $10 to employees of a university, including free trips, meals, and tickets to entertainment events. Lenders are no longer allowed to offer services to a financial aid office that create a conflict of interest such as lending staff during peak loan processing times, printing literature for the financial aid office and e-mailing students on behalf of the financial aid office.

Second, the Act provides students and their families access to information about preferred lender lists, special arrangements between lenders and colleges and terms and conditions of loans. A school's preferred lender list must include at least three lenders that are independent from each other, clearly disclose why a lender was identified as a preferred lender, and clearly state that students and parents may take out a student loan with a lender that is not on their school's preferred lender list. This requirement is needed because in some instances, a school's preferred lender list may include what appear to be five different lenders; however, four of the five lenders may turn out to be subsidiaries of a single company. Lenders are required to report to the Secretary of Education any special arrangement they have with colleges to make loans to the students at a school including the terms of the arrangement and any benefit provided to the school in connection with the loan arrangement. In addition, the Act requires the Secretary of Education, along with the higher education community and students, to develop an easy-to-understand form for reporting the terms and conditions of student loans--similar to an APR disclosure.

Finally, the Act encourages students to maximize their borrowing options through the government's loan programs before obtaining private loans with higher interest rates and discourages over-borrowing through direct-to-consumer education loans. Some companies fail to clearly disclose that their private educational loans typically carry a higher interest rate and even encourage students not to complete the Free Application for Federal Student Aid form, which allows students to borrow low-interest educational loans. The Act requires all direct-to-consumer lenders to clearly disclose to students certain information such as: the fact that the student may be eligible for low-interest student loans through the federal government, how the interest rate is determined, any and all fees, and whether any complaints have been filed against the lender. Additionally, the Act puts in place provisions that will ensure that before a student obtains an educational loan through a direct-to-consumer lender, the student is informed of their loan options through the federal government and whether the loan will cause the student to exceed what is necessary to cover the student's cost of attendance.

These requirements are simply meant to ensure that as students are about to sign on the dotted line and accept what will likely be one of the largest debts they will incur in their lives, they have the information they need to make an informed decision and some assurance that their school has only their best interests in mind--not visions of the Caribbean or the latest iPod. We must not look away and allow them to be taken advantage of at one of the most critical points in their lives. I urge my colleagues to support this important legislation.

http://thomas.loc.gov/