House Committee on Education and Labor
U.S. House of Representatives

Mr. Chairman, I yield myself such time as I may consume and I rise in support of H.R. 5715, a bill that will help ensure college students and their families are able to plan with confidence for the upcoming school year. On its own, this bill will not restore confidence and stability to the student loan programs.  But it’s an important first step.

For months, members on both sides of the aisle have been warning the U.S. Departments of Education and the Treasury, the various federal financial institutions, and indeed, anyone who will listen about the potential risks to our student loan program.  Many of us recognized early that it was only a matter of time before the turmoil in the broader credit markets would spill into the student loan programs. 

And, unfortunately, those warnings have become reality.  I’d like to share just a few of the headlines that have appeared in major papers over the last several weeks:

•    The Wall Street Journal: Credit Woes Hit Student Loans

•    The New York Times: Fewer Options Open to Pay for Costs of College

•    The Washington Post: Credit Crisis May Make College Loans More Costly: Some Firms Stop Lending to Students

•    USA Today: Credit Woes may Hinder College-Bound

Mr. Chairman, with this bill, we’re acting to prevent a crisis before it develops.  As these headlines demonstrate, the anxieties among students and families are very real.

This bill is far from a complete solution, but it contains modest yet meaningful steps to restore investor confidence, begin to address the liquidity shortages, and most importantly, provide assistance to student and parent borrowers.

The challenges in the student loan market are multi-faceted.  Last year, federal support for the loan program was slashed, forcing loan providers to scale back on benefits and reevaluate their future participation in the program.  This year, disruptions in the capital markets have reduced liquidity and shaken investor and consumer confidence.

With enactment of the College Cost Reduction and Access Act last fall, we cut some $21 billion from the program over five years.  Although we were able to reinvest some of those funds in Pell Grants – which I strongly support – it appears now that we may have done harm along with that good.  That’s because we cut so deeply into the student loan program that many lenders have opted to stop offering federal loans altogether.

On the issue of liquidity, what we require is a two-pronged approach to reinstate the flow of capital into the program.

First, this bill authorizes the U.S. Department of Education to act as a secondary market by purchasing or agreeing to purchase student loans so that lenders and holders can make or purchase new loans in the upcoming school year.  Although this plan will provide only a modest amount of liquidity, it sends an important signal that policymakers are committed to the program’s long-term stability.  And it does so with no cost to the taxpayer.

Second, to provide an even greater flow of capital into the program, we’re taking steps to ensure other federal financing authorities are viewed as viable sources of liquidity.  To that end, this legislation contains a Sense of Congress urging these authorities to exercise their existing authorities to inject liquidity into the marketplace.

We’re not alone in recognizing that this market-based problem requires a market-based solution.  Just yesterday, the Chairman of the Senate Banking Committee held a hearing on the impact of market disruptions on student loan access, and he called for intervention by the Federal Financing Bank.  I welcome these types of creative and complementary approaches, which will work in concert to calm the market.

Taken together, the prospect that federal financial institutions and the U.S. Department of Education stand ready to take the necessary steps to invest in and commit to the future purchase of loans will begin to quell the market uncertainty and restore confidence among investors, as well as among students and families planning for the coming school year.

The troubles facing our financial markets and our economy as a whole are daunting.  But we would do a real disservice to students and families if we dismissed the challenges in the student loan program as merely a symptom of a larger problem that is outside our control.  The fact is, we can take steps to prevent a collapse in the student loan market.  We can do so quickly, and without a cost to taxpayers, by focusing on our commitment to market stability.

I would also offer a word of caution to those who are wary of federal intervention: if we fail to act now, we may be forced to take on a much greater government role in the future.  And surely we can all agree, it’s better to preserve the private sector program now than to replace it with a federal program later.

We made a commitment more than four decades ago that there are national benefits to an affordable, accessible higher education system.  What we’re doing today is restating that commitment, and sending a signal to students and families that we continue to believe in this program that has opened the doors of higher education to so many millions of aspiring young Americans.

Mr. Chairman, this is a good bill that deserves our support.  Thank you, and I reserve the balance of my time.