TG

The Guarantor of Choice SM

TG's Legislative Report

January 18, 2005

House and Senate Budget, Education and Government Reform Leaders Seeking Independent GAO Report on Hidden Costs of Direct Student Loan Program

The leaders of the House and Senate budget and education committees have jointly asked the independent Government Accountability Office (GAO) for a study that will examine the true cost to taxpayers and students of the Direct Student Loan Program, which some believe costs the federal government significantly more to operate than current federal records suggest.

"Taxpayers, parents and students deserve to know the real costs of the Direct Loan program — and they certainly deserve to have these facts before they're asked to pay more money to entice schools to stay in the program," said House Education and the Workforce Committee Chair John Boehner (R-OH).

The GAO request was signed by Boehner; (now) Senate Budget Committee Chair Judd Gregg (R-NH); (now) Senate Health, Education, Labor, and Pensions Committee Chair Mike Enzi (R-WY); House Budget Committee Chair Jim Nussle (R-IA); House Government Reform Committee Chair Tom Davis (R-VA); (now) House Intelligence Committee Chair Pete Hoekstra (R-MI), the former Chair of the House Select Education Subcommittee; and House 21st Century Competitiveness Subcommittee Chair Howard P. "Buck" McKeon (R-CA). The congressional request was sent to GAO on August 31, 2004.

"Expanding a program that allows the government to directly compete with the private sector is fundamentally bad public policy," Hoekstra said. "CBO budget scores represent a flawed analysis that does not reflect the true cost of lending incurred by the federal government."

The Direct Student Loan program, unlike traditional student lending (known as the Federal Family Education Loan Program, or FFELP) based in the private sector, places the lending and administrative burden squarely on the federal government. Proponents of the Direct Loan program have proposed a dramatic expansion of the program, using hypothetical "savings" to pressure colleges and universities to participate in the government-run program. Yet many Americans would argue the Direct Loan program is already propped up enough by taxpayers.

Questions are growing about hidden costs associated with Direct Lending — costs that exist but don't show up on the federal government's balance sheet because of accounting procedures. A preliminary review of U.S. Department of Education data shows overall Direct Lending subsidy costs have been underestimated by $4.1 billion over the life of the program, resulting in lower savings to the Treasury than originally estimated, whereas FFELP's subsidy costs have been overestimated by more than $6 billion over a comparable time period (1994-2003).

"As Congress prepares to reauthorize the Higher Education Act, it is absolutely vital that my colleagues and I have accurate and reliable data about the hidden costs of the Federal Direct Loan Program," said McKeon. "The studies we have seen so far have left us with more questions than answers, and until we get accurate data, it's irresponsible to jump to conclusions about the future of Direct Loan and FFELP."

"I understand and appreciate the importance and value in finding the best financing mechanisms for our leaders of tomorrow. Education is far too important to make a hasty assumption. That is why we have requested a GAO report on this very topic," said Davis .

"According to U.S. Department of Education data, more than 500 schools have left Direct Lending since the program's inception — an exodus that began during the late years of the Clinton administration, when the number of schools leaving was nearly double the number entering," noted Boehner and McKeon in a letter to colleagues last year. "Because of this exodus, proponents of expanding the federal role in student lending have suggested American taxpayers should begin providing schools with extra money to remain in the Direct Loan program — an apparent admission that the Direct Loan program can't compete with the more-efficient private sector unless taxpayers fork over millions in additional money."

Back to Top

CBO Says Bipartisan Student Loan Bill Would Increase Funding for Pell Grants by $12 Billion

A bipartisan bill promoted as a way to help students and their families pay for college by increasing funding for the Pell Grant program by $12 billion over the next ten years at no additional taxpayer expense, according to a recent analysis by the nonpartisan Congressional Budget Office, is ready to be filed for consideration by the 109th Congress as a part of the reauthorization of the Higher Education Act.

The projection of an additional $12 billion over a ten year period in this legislation is in line with the recently reported Administration proposal, to be included in its FY 2006 budget submission to congress, to increase funding to the Pell Grant program by $15 billion over ten years that will increase the maximum annual Pell Grant by $100 annually until the maximum reaches $4,550 in 2010.

"The CBO has confirmed what I have been saying for years," said Rep. Thomas Petri (R-WI), House Education and Workforce Committee Vice Chair. "Our student loan program is awash with big subsidies for private banks that are completely unnecessary. If we stop subsidizing banks and just provide the loans directly from the U.S. Treasury, we could free up billions of dollars to be used for Pell scholarships."

Congressman Petri, a Republican from Wisconsin was the original author of the Federal Direct Loan Program (FDLP) in its original form in 1991 when he served as a member of the House Education Committee. His legislation was subsequently scaled back to a pilot program during the 1992 Higher Education Act reauthorization, and transformed into a permanent program to compete with the Federal Family Education Loan Program (FFELP) in 1993 as part of the omnibus budget reconciliation act. "At a time of rising college costs, skyrocketing college debt and huge federal budget deficits, Congress cannot afford to pass up the opportunity to provide deserving students with an extra $12 billion in college aid," said Rep. George Miller (D-Calif.), the senior Democrat on the committee. "This proposal would help make college affordable for millions of hard working students."

Petri and Miller coauthored the bill, called the Direct Loan Reward Act. If a majority of schools took advantage of the legislation, then annual Pell scholarships could be boosted by more than $1,000 per student. Last year's maximum Pell scholarship was worth nearly $800 less, in real terms, than was the maximum scholarship 30 years ago.

As soon as the bill if filed, it will be able to be accessed at thomas.loc.gov.

The bill works by providing colleges and universities with incentives to use the FDLP in favor of the FFELP to make college loans to students. Both programs are the main federal student loan programs. The federal government makes loans available directly to students in the FDLP. In the FFELP, private lenders — backed by government subsidies and guarantees — provide the capital for student loans.

Under the Petri-Miller bill, when colleges switch from the FFELP to the FDLP, savings are purported to be achieved by cutting out the "middlemen", since both programs offer the same loan terms to students. The bill will encourage schools to participate in the FDLP by giving them half of the savings it would generate to provide additional Pell scholarship money to low- and moderate-income students.

The CBO $12 billion estimate assumes that Direct Loan volume would gradually increase to 40 percent of loan volume from its current 25 percent.

CBO Director Douglas Holtz-Eakin recently told Gannett News Service reporter Brian Tumulty: "We have a more generous subsidy in the private sector loans. We have subsidies to the student plus to the lender. And the net effect is that if we went under current law to the direct student loan program, we'd save money basically because we'd subsidize those loans less heavily."

"This bill is about helping students go to college; it's about building a workforce that keeps America competitive for generations to come; and it's about smarter, better government," said Miller. "Those are goals that every American can support."

Back to Top

Legislative Update

Legislation pre-filed so far for consideration by the 79th Regular Session of the Texas Legislature, which convenes on January 11, 2005, signals the major topics that will take up the bulk of the 140 day Session.

Bills include legislation to establish a business activity tax, propose constitutional ban on gay marriage, restore funding to the state's Children's Health Insurance Program for children of the working poor, revamp the state's child and adult protective services agencies, propose constitutional amendments to require all votes taken in the House and Senate to be recorded and to reduce the definition of "majority" in each chamber in order for each to convene each day to conduct business from the current two-thirds to a simple majority, establish a state pilot school voucher program, restore funding to the health care program for public school teachers.

The following higher education/student financial aid related bills have been pre-filed for consideration during the Session.

Full background and details of each bill can be accessed at Texas Legislature Online (www.capitol.state.tx.us).

HB 19 — Relating to tuition and fee rebates for timely completion of degree programs offered by general academic teaching institutions.

HB 20 — Relating to a pilot program to provide reduced undergraduate tuition during a summer term or session at Texas A&M University.

HB 37 — Relating to automatic admission of undergraduate students to a general academic teaching institution that is a component institution of a university system.

This bill proposes to allow students admitted under the state's "Top 10 percent" law to an institution that is a part of the University of Texas System, Texas A&M University System, Texas State University System, Texas Tech University System, University of Houston System, and University of North Texas System to be enrolled by the system at any component institution within that system.

HB 40 — Relating to tuition assistance granted to certain members of state military forces attending public or private institutions of higher education.

HB 64 — Relating to the automatic admission to public institutions of higher education of certain undergraduate transfer students.

This bill proposes to require public general academic institutions to automatically admit graduates of the state's public community colleges who receive a degree with a 3.0 GPA.

HB 133 — Relating to the award of academic credit to a student at an institution of higher education for the completion of certain military training.

This bill proposes to allow certain public institutions of higher education to award credit toward completion of a degree program for certain military training that satisfies the institution's requirements for a course.

HB 328 — relating to promoting the importance of higher education in public schools.

This bill proposes to require each school district and charter school to designate one week during the year "Education. Go Get It Week", during which each student would receive information concerning higher education opportunities and benefits, student financial aid, academic requirements, automatic admission criteria, etc. Also, each venue would be required to have at least one speaker present on the importance of obtaining a postsecondary education.

SB 30 — Relating to tuition and fee exemptions for students contracting to graduate in a timely manner from public institutions of higher education.

This bill proposes to allow a student to enter into a contract with the institution to receive an exemption for payment of tuition and fees in return for the student graduating within the prescribed time for the degree and maintaining a 15 credit hour per semester course load.

SB 31 — Relating to requiring students receiving certain financial aid at institutions of higher education to meet timely graduation and academic progress requirements.

This bills proposes to substitute "30 hours" for the" 75 percent completion" satisfactory academic progress requirement in the TEXAS Grant and Tuition Equalization Grant programs after the freshman year, and apply the same requirements as those for the Texas B-On Time loan program.

SB 32 — Relating to certain special tuition rates at institutions of higher education.

This bill proposes to allow institutions to charge lower tuition rates for summer sessions.

SB 33 — relating to graduate stipends awarded as part of the Texas B-On Time loan program.

This bill proposes to allow graduate students who received B-On Time loans as undergraduates to qualify for $2,5000 graduate stipends.

SB 34 — Relating to the tuition rebate program for certain undergraduates at certain public institutions of higher education.

This bill proposes to allow a tuition rebate for undergraduates who graduate within the prescribed time for their degree as required for a Texas B-On Time loan.

SB 71 — Relating to the prohibition of certain disclosures of a consumer's financial information.

This bill is the same as SB 76, except it does not include the consumer "opt-in" provisions.

SB 76 — Relating to a consumer's option to prevent the disclosure of the consumer's financial information by a financial institution and providing a civil penalty.

This bill proposes to prohibit financial institutions from sharing consumers non public financial information for marketing purposes with another party unless the consumer is first provided a written privacy notice stating that the financial institution may not disclose the information unless the consumer opts-in (agrees). Under the bill, financial institutions may share the information with affiliates, but the affiliates may not, in turn, share the information without going through the "opt-in" process.

SB 79 — Relating to tuition exemptions granted by public institutions of higher education to children of certain classroom teachers. This bill proposes to provide tuition exemptions to children of school teachers who are certified by the National Board of Professional Teaching Standards and have taught in a critical teaching shortage field shortage area for 10 years.

SB 80 — Relating to the percentage of certain tuition set aside to fund financial assistance for resident undergraduate and graduate students at public institutions of higher education.

This bill proposes to increase the percentage of the set aside from public university tuition charged above $46 per credit hour from 20 percent to 40 percent for resident undergraduate student aid, and from 15 percent to 20 percent for resident graduate student aid.

Back to Top

Congressional Update

The First Session of the 109th Congress convened on January 4, 2005.

Priority items for consideration during the initial Session include FY2006 appropriations, the budget deficits and federal debt, entitlement reform — Social Security and Medicare reform — how to address the dramatically increasing unfunded liability generated by record federal borrowing to fund current spending, caps on discretionary spending, tax reform, costs of post 9/11 activities, congressional budget process reform, and several reauthorizations certain to be impacted by the above items, including highways and mass transit, Temporary Assistance for needy Families, Head Start, energy, higher education, and the Coast Guard.

Back to Top

TG Sunset Advisory Commission Review and State Legislative Update

The final report by the Texas Sunset Advisory Commission was adopted by the Commission on December 16th and can be accessed at www.sunset.state.tx.us/79.htm under "Decisions".

TG is fully supportive of the findings and recommendations included in the report and looks forward to working with the Sunset staff and eventual Senate and House sponsors of the legislation to continue TG for 12 years.

We also greatly appreciate the support exhibited by our customers during this process.

The 79th Regular Session of the Texas Legislature convened on January 11, 2005.

Priority agenda items to be considered during the legislature's 140 day Regular session are shaping up to be FY 2006-2007 appropriations and budget deficit, public school finance, tax reform, Medicaid and health insurance for the uninsured, water and transportation policy, job creation and technology, worker compensation reform, ways to encourage prompt graduation from college to maximize state financial aid, and 29 Sunset bills, including those to reauthorize the Texas Education Agency, Lottery Commission, Cosmetology Commission, Board of Medical Examiners, Alcoholic Beverage Commission, Public Utility Commission, Public Utility Counsel, Workers' Compensation Fund, and TG.

Back to Top

For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100

 

© 2008 Texas Guaranteed Student Loan Corporation