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The Administration opposes the reported version of H.R. 2535, the"Emergency
Student Loan Consolidation Act of 1997", and will work to amend the bill in
the Senate in at least two respects. First, H.R. 2535 needs to be amended
to ensure that all student loan borrowers who are seeking to consolidate
their loans are treated equitably and provided consolidation benefits
comparable to those available in the direct loan program (with the
exception of income-contingent repayment). In addition, the bill needs to
be amended so that services to student loan borrowers under both the direct
loan and the Federal Family Education Loan (FFEL) programs are not
impaired by reducing funds available for administrative expenses.
Allowing direct loan borrowers to consolidate their student loans into the
Government guaranteed FFEL program only addresses one-third of those loan
consolidation applications in the backlog. The other two-thirds are either
not being served by, or are unsatisfied with, the FFEL program and are
seeking another option. These amendments are necessary to ensure that the
FFEL program is open to serving all of the borrowers who are served by
direct lending, offering similar flexibility in repayment.
The Department of Education's private-sector contractor is now on track to
eliminate the backlog of direct consolidation loan applications, resume
accepting new applications by December 1st, and process them on a timely
basis. Nevertheless, the Administration would support a bill that truly
benefits student borrowers seeking to consolidate their loans.
The Administration will work in the Senate to amend the bill. At a
minimum, the bill must be amended to:
- Eliminate the $25 million reduction in funds available under
section 458 of the Higher Education Act of 1965, and substitute an
acceptable offset to the cost of the bill. This funding reduction
would jeopardize service to students and schools in both loan
programs, and violate the funding levels set in the bipartisan budget
agreement. These levels represent the bare minimum needed to support
the effective delivery and oversight of almost $50 billion in student
financial assistance in FY 1998 to over eight million students and
their parents.
- Add a provision requiring a FFEL lender that wants to consolidate
student loans during the time period covered by the bill to make
consolidation available to all borrowers applying for it on the same
basis as consolidation is available under the direct loan program.
This would require, for example, that lenders provide consolidation
loans to all borrowers that would be eligible for them under the
current direct loan program, provide interest rates that are
equivalent to direct consolidation loan interest rates, and provide
opportunities for borrowers to switch among available repayment
options.
The Administration is pleased that the reported version of H.R. 2535
includes the Administration's proposal to ensure that a student is able to
enjoy the full benefit of the new HOPE Scholarship or Lifetime Learning tax
credit without jeopardizing his or her future eligibility for student
financial assistance. The inclusion of this proposal, however, does not
overcome the bill's shortcomings as described above.
Pay-As-You-Go Scoring
H.R. 2535 would affect direct spending and receipts; therefore, it is
subject to the pay-as-you-go requirement of the Omnibus Budget
Reconciliation Act of 1990. OMB estimates that H.R. 2535 would result in a
net decrease in direct spending of $6.6 million in FY 1998 and a total of
$19.6 million in FYs 1998-2002.
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