Smarter Solutions for Students Act

Floor Speech

Mr. KING. Mr. President, we have been hearing really two debates around here the last few days--in fact, over the last few days and months--about student loans. Both are important, but they are separate, and I think they need to be separate and thought of as two separate debates as we consider the issue before us this afternoon.

The first and larger issue is the cost of college. It is too high. Everyone agrees to that. In fact, the cost of college--of higher education--has exploded in the last 30 years.

In a former life, I used to interview people for a living on television. In the 1980s I interviewed the financial aid officer at one of our Maine colleges. He made a very interesting point.

He said: Angus, if you look back over the last 40 or 50 years, the cost of a private college education in the United States has almost exactly tracked the cost of a new Ford automobile. In the 1950s, $1,500 bought a car and a college education. In the 1960s, about $3,000 bought a car and a college education. That relationship continued into the 1990s. Then something happened because today a new Ford is about $18,000 and a private college is approaching $60,000, something like $58,000.

That is a real problem for all of us. It is a problem for parents. It is a problem for students. It is a problem for the government that supplies the loans. It is a problem for Pell grants. It is a problem for all of us. It is one we need to discuss. But that is not the issue before us today.

There has been some discussion in this bigger debate about college costs and what the Federal role should be. Should it be to support and help students go to college? Indeed, we have had this discussion for the last 25 or 30 years, going back to the time of Pell grants, which were designed to help students--particularly low-income students--go to school. We have had various iterations of the student loan program. At first it was lodged in the banks, and it was a guaranteed student loan. Then some years ago it was made exclusively a Federal loan.

I can make the arguments--and we have heard some of them on the floor, including from the Senator from Vermont, who very eloquently made the argument that we need to make college accessible. We should do that, but not in the context of the discussion we are having today about student loans. It is a larger issue. I am sure Senator Harkin and his committee are going to take that up in the reauthorization of the Higher Education Act later this year.

I can be very passionate and persuasive about the importance of the affordability of college. In fact, I would argue that the GI bill, back in the early 1950s and late 1940s, is one of the most important economic development investments this country ever made because it sent a whole generation of young Americans to college, and it was the mainspring of our great economic growth in the 1950s and 1960s.

The problem now, though, if we are talking about massive new Federal support for higher education--it runs into three problems, it seems to me, that we are going to have to examine and think about as we move forward in this debate. One is financial, another is political, and the final one is economic.

The financial problem is we are broke. Every dollar we spend--in addition to what is being spent now; in fact, including about 30 percent of what we are spending now--is borrowed. So if we are going to significantly increase Federal grants or subsidies to students, they have to come from somewhere else. I heard Senator Carper speak yesterday about this.

He said: Do we really want to say, OK, we are going to cut Head Start in order to give funds to students? Are we going to cut somewhere else? How are we going to make those kinds of allocations?

Every dollar must be borrowed, and that is just the financial reality we are in today.

The political reality is we are in a situation of divided government. The central reality of our political times is nothing happens in this city without votes from both parties. It is simple arithmetic. We have a President who is a Democrat. We have a House of Representatives that is controlled by Republicans, and we have a Senate with a majority of Democrats but with important powers to the minority party. So the bottom line from all that is nothing happens without bipartisan votes. So as much as we--or any group, whether it is the Democrats, the Republicans, or our two Independents--as much as we might want something, if it doesn't have bipartisan support, it is simply not going to happen. That is the reality.

That is indeed the reality that drove Joe Manchin and I to begin these discussions about 6 weeks ago when we were talking about student loans. There was a Democratic proposal which didn't get enough votes, there was a Republican proposal which didn't get enough votes, and everybody walked away. I was haunted by the experience of the sequester, where the same thing happened: Democratic proposal, Republican proposal, everybody hates the sequester, but it is happening.

So we believed we had to open some discussions because we have to find a way to get enough votes to get a proposal through the Congress so students aren't facing way higher interest rates this month than they should be. No action, make no mistake about it, means students will be paying dramatically higher interest rates than they should be, given the current cost of money. Why? Because Congress fixed an interest rate.

I would argue the last thing Congress should ever do is fix an interest rate. It will always be wrong--either wrong for the students as it is now, dramatically, or wrong for the taxpayers at some point in the future. We can't predict what interest rates can or should be, and fixing a rate, which is what we are facing now--6.8 percent--is always--at this point, as I said, is dramatically wrong for students.

In terms of the political realities around here, my dad was a lifelong poker player. One of the things I learned from him--one of the guiding principles of my life--is you have to play the hand that is dealt. The hand that is dealt us right now is that it takes both Republican and Democratic votes to get anything through the Congress. That is the reality, and that defines our ability to get things done. It doesn't mean we can't get things done, it just means we can't always get our way, and compromise has to be part of our lexicon.

The final issue about whether we want to create a massive new support program for college education is economics. I am not saying this is a dispositive argument, but I think it is something we have to think about. The explosion of college costs I talked about that started in the 1990s corresponded, to a large extent, to the availability of additional money for scholarships and loans and grants, and the colleges essentially ate it up. We can go through great effort to find money to increase Pell grants by $1,000, and we will all feel good that we have done something for the students. But if the colleges increase their costs by $1,000, nobody wins. The Federal Government and the taxpayers are out $1,000. The students are in exactly the same position they were in before. They still have to find the difference because the money has just been eaten up by the increases in costs.

I think that is why we have to be thinking about what the implications are of the actions we take. Just saying we want to give more money to students for college--if, indeed, that money immediately turns into higher costs and higher tuition, nobody has gained, least of all the students because they end up with this huge debt burden.

We can and should have this discussion. It is an important one. But it is not the discussion before us today. The discussion before us today is pretty simple: Do we want to continue a program that has fixed rates at 6.8 percent when currently rates are running more in the 3-percent range?

In other words, do we want to balance the Federal budget for the next 4 or 5 years on the backs of our students? I don't think we should do that. I think we have come up with a proposal that doesn't do that--that dramatically benefits students as long as interest rates are where they are, and it protects students on the upside.

I try to always think about problems as if we didn't have all of the history and we simply had a blank sheet of paper and said: How should we go about this? How should we structure a student loan program in the Federal Government if we didn't have all the back-and-forth and the history and the fixed rates and all of those things?

It would seem to me if we sat down in a room with a group of bright people, they would say: Well, No. 1, the government is going to have to borrow this money that it then lends to the students because we are broke. Therefore, in order to be fair to the taxpayers and the students, the students should pay what it costs the government to borrow the money, plus a little bit for the cost of administering the program and the risks of default. That is exactly where we landed in this proposal.

People talk about market rates. Yes, there are market rates, but it is the 10-year Treasury bill, which is one of the lowest rates in the country. This isn't the prime rate. This isn't LIBOR. This is one of the lowest borrowing rates we can ever have. It is the borrowing rate for the U.S. Government, which heretofore anyway has had a pretty good credit rating. Therefore, the students are guaranteed that they will always be below the outside market. If they went to a bank for a loan with no collateral, no cosigning, no job, the rates would be much higher than what we are talking about.

By the way, it is important to understand, because there has been so much discussion about this, that this is not an adjustable rate mortgage. If we can manage to pass this bill and get it through the House and get it to the President in the next week to 10 days, once a student signs up for a loan this fall their rate for that loan will be fixed at 3.86 percent for the term of the loan--for the term of the loan.

It is true that the following year, if they need another loan, that rate will be the T-bill plus 2.05 percent for the term of that loan. In other words, the loan rate doesn't change each year according to the rates. I think that is an important distinction. I think there has been some confusion about that. In addition, there are provisions in current law which this bill doesn't change that allow for forgiveness of student loans under certain circumstances, depending upon how long the loan has been in place and the employment a person has, as well as limits on how much a person has to pay as a percentage of their income.

As I said before, I don't believe Congress should be setting rates.

Let's talk about the effect of this proposal on students. The first effect is that it will cut almost in half the rates students are going to have to pay for their loans this year, from 6.8 percent to 3.86 percent, as this side of the chart shows. So a freshman going to college starting in 2013--this year--this is what they would pay for their total loans under this proposal.

It says ``bipartisan''; it should say ``nonpartisan.'' This is what they will pay under current law. That is a dramatic difference. That is money out of the pockets--billions of dollars out of the pockets of students over the next 2 or 3 years.

Everybody says, well, what if rates go up? Rates might go up. They might stay the same. They might go down. But even if they go up, under the projections of the Congressional Budget Office, here is a student starting college in 2017, and they would pay a little bit more under our proposal--it is the difference between $24,800 and 24,295--about $500. This difference is about $2,000. This is money in hand. This is maybe, depending upon what happens with interest rates--what is worth more, $1 billion in hand or $1 billion in the bush? I think it is $1 billion in hand because these are the rates kids are going to have to face right now.

I think this is a great deal for students. No. 1, it dramatically lowers the rates in the early years. No. 2, thanks to the hard work of Tom Harkin, who negotiated like a tiger, there is a cap on the upside. So students aren't subjected, if rates happen to go way up--as they have occasionally but not very often in our recent history--into double digits, there is a cap of 8.25 percent.

So the students enjoy the benefit of the low rates, but their exposure to the upper rates, to too-high rates, is capped. I think that is a sensible and prudent and beneficial proposal for students.

The savings to students next year will be something like $8 billion or $9 billion; otherwise, if we do nothing this week, that is the amount they are going to have to pay.

The future is uncertain, but I think it is important to talk about projections of interest rates because a lot of the discussion is that the students are going to have to pay so much more because the CBO projects interest rates to go up. By the way, even on the CBO's projections for undergraduates, the rates would never hit the cap.

They would be in the low 7s--very close to where the present rate is.

But let's just talk about CBO interest rate projections because that is what is driving a lot of the anxiety around here. Here is the CBO. Let's pretend it is 2003--10 years ago--and we go to the CBO and say: What are you projecting for interest rates--just as we did a few weeks ago? Here is what they projected. They said: Well, interest rates are at about 4 percent, but we think they are going to go up around 5, 5.5, 6 percent. That is the projection CBO used in 2003. OK.

The good news is, we know what actually happened. Again, starting in 2003, here is the actual cost of interest rates. Look at the difference. If we were basing our decisions on projected interest rates, look at the huge difference that took place, and all of this represents money in the students' pockets as opposed to fixing the rate.

So, yes, the projections are that they will go up, but we do not know that. I would take money in hand anyday against a possibility that there might be a payment later on. And we do not know that. It could go either way.

If interest rates go way up, as I said, the cap kicks in. The cap of 8.25 percent is very close to the 6.8 percent we have now. It results in about--I do not know--$20 a month difference between the cap and the 6.8 percent, if, indeed, we go all the way to the cap.

I think this is a prudent and responsible proposal. It is the best of all worlds for the students because they get low rates now, and they get a cap if rates go up. I think it makes sense for the taxpayers. I am perfectly willing to have the debate, to have the discussion about, A, what do we do about college costs, and, B, should the Federal Government be playing a greater role in terms of support for students? I think that is a very honest discussion.

But this is called the student loan program. It is about loans. And the implication of a loan is that it is to be paid back with some reasonable rate of interest. Pell grants are grants, and we have tax credit programs that are, in effect, grants. This is one part of the student aid puzzle, and what we have before us today is a prudent, sensible, beneficial program for the students.

I will conclude by saying the choice is very clear because if we do not act on this bipartisan proposal that we believe will have a receptive ear in the House of Representatives--we know the President supports it and is ready to sign it tomorrow--if we do not move this bill, nothing happens, nothing happens during August, students are signing up for loans at almost double the rate they should be. I think that is unfair to students, and I think they sent us here to solve problems. This is one I believe we can tackle. We can and have solved it.

I yield the floor.

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