WASHINGTON, D.C. – U.S. Reps. George Miller (D-CA) and Rubén Hinojosa (D-TX) today joined U.S. Education Secretary Arne Duncan in urging college campuses to take prudent action to ensure that their students continue to have access to stable, low-cost federal college loans, regardless of what happens in the economy. Their letter to college presidents echoes a letter Duncan sent to institutions last month.
Specifically, the lawmakers urged the presidents to prepare to make the Direct Loan program available to their students as an option for the 2010-11 school year. Both the Direct Loan and Federal Family Education Loan (FFEL) programs offer federal loans to students at the same terms and conditions and are much less expensive than private loans. However recent economic turmoil has seriously weakened the stability of the FFEL program, putting lenders’ participation in the program in doubt. In contrast, the Direct Loan program, which is cheaper for taxpayers, has remained insulated from the economic crisis and continued to operate normally for the campuses and students that use it.
“The recent economic turmoil has adversely affected the stability of one of our nation’s student loan programs,” Miller and Hinojosa wrote. “As you know, Secretary Duncan recently sent a letter urging institutions to be Direct-Loan ready for the 2010-2011 academic year and offering the help of the Department of Education in preparing for such a transition. I agree with the Secretary’s sentiments and I hope that you will seek the assistance and information offered by the Secretary and his staff in making choices about how the students at your institution can access Federal student loans. If we all take prudent action, we can achieve our shared goal of ensuring that every eligible student has access to the dependable student aid needed to pay for college and pursue their dreams.”
Miller, the chairman of the House Education and Labor Committee, and Hinojosa, the chairman of the panel’s higher education subcommittee, are the authors of legislation, the Student Aid and Fiscal Responsibility Act, to make the federal college loan program reliable for all students by switching all federal lending to the Direct Loan program by July 1, 2010. This move would save $87 billion over ten years, which would then be invested in historic increases in the Pell Grant scholarship and other forms of aid to help students pay for college. The legislation was proposed by President Obama and passed by the House of Representatives in September.
In their letter today, Miller and Hinojosa said that making necessary preparations to also administer Direct Loans on campuses was critical to guarantee students’ loan access, regardless of the outcome of the legislation or whatever happens in future economies.
In testimony before the committee last May, Pennsylvania State University, which switched to Direct Loans in March of 2008 to protect its 38,000 students from the credit crunch, reported that the campus did not have to hire extra staff or increase its budget resources during the transition, that Direct Loans offered better loan repayment and loan forgiveness options for students.
A July survey of financial aid officers from institutions that switched to Direct Loans found that 73 percent of those surveyed said the switch was easier than they thought. Eighty-four percent said the Department of Education was helpful in the conversion and 61 percent said administering DL was less burdensome than FFEL. Eighty percent of those surveyed report that they were able to switch programs within four months.
The full text of the letter to college presidents is below.
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To whom it may concern:
As the head of your institution, Secretary Duncan recently sent you a letter urging institutions of higher education to be Direct Loan-ready for the 2010-2011 academic year and offering the help of the Department of Education in preparing for such a transition. I agree with the Secretary’s sentiments, and I hope that you will seek the assistance and information offered by the Secretary and his staff in making choices about how the students at your institution can access Federal student loans. This step will guarantee that your students will have uninterrupted access to Federal student loans in the coming years. I have attached his letter for your reference.
The recent economic turmoil has adversely affected the stability of one of our nation’s student loan programs. Specifically, as the economy fell into recession, private lenders’ continued participation in the Federal Family Education Loan (FFEL) program was in doubt. Many lenders did not have the capital needed to continue originating federally-guaranteed student loans, threatening students’ access to critical financing needed to pay their tuition and other postsecondary expenses. In response, Congress swiftly enacted a temporary backstop --the Ensuring Continued Access to Student Loans Act (ECASLA) -- that provided government financing to private lenders to originate Federal student loans. While ECASLA temporarily ensured students’ access to loans, the Act is not a permanent solution to stabilize the FFEL program and expires in July 2010. Despite ECASLA, moreover, private lenders, including some of the nation’s largest, continue to withdraw from the FFEL program. In contrast, the Direct Loan program, which offers students the exact same loans but is cheaper for taxpayers, has remained insulated from the downturn in the economy and has continued to operate normally for those campuses that use it.
Additionally, as you may know, President Obama has proposed, and the U.S. House of Representatives has passed, legislation to make the Federal college loan system reliable for all students by moving to a 100 percent Direct Loan delivery system and investing the associated taxpayer savings in historic investments in Pell Grant and other forms of student aid. I strongly believe that this legislation will ensure that the Federal student loan program works in the best interests of students, schools, and taxpayers, and will offers a permanent solution that guarantees access to Federal student loans regardless of economic conditions.
In light of the above, it is increasingly important that institutions are prepared to also deploy the Direct Loan program for the 2010-2011 academic year. That way, loan access for students will be assured, regardless of the outcome of Congress’ deliberations over the President’s proposal, or whatever future economic conditions could occur that might affect FFEL lenders’ ability to fund loans without government intervention.
If we all take prudent action, I am confident we can achieve our shared goal of ensuring that every eligible student in this country has access to the dependable student aid they need to pay for college and pursue their dreams.
Sincerely,
George Miller Ruben Hinojosa
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