February 11, 2005

WASHINGTON -- President Bush's 2006 budget shows that billions of additional dollars could be made available to help students pay for college at no additional taxpayer expense, said two senior lawmakers on the House education committee today.

"There is enormous waste in our student loan programs-the President's budget couldn't be more clear about that," said Rep. Tom Petri, the Vice Chairman of the House Education and the Workforce Committee, who is sponsoring bipartisan legislation with Rep. George Miller (D-CA), the panel's senior Democrat, that would make college more affordable and help eliminate waste in the student loan programs. "We have two student loan programs, but one costs taxpayers over ten times as much to make the same loans because it guarantees billions in taxpayer subsidies to big banks. That's money that could instead be used to boost Pell scholarships at a time when students and their families are struggling to pay for college."

The two main federal student loan programs-Federal Family Education Loans (FFEL) and Direct Loans-have different administrative structures, but offer identical terms to student borrowers. In FFEL, private banks make the loans, and the federal government guarantees the loans against default and guarantees that banks receive a certain rate of return on their money. In Direct Loans, the government makes loans through the Treasury and contracts with the private sector to administer the program. Direct Loans cost taxpayers less because they eliminate the middleman and cut out excessive subsidies to banks.

According to the President's 2006 education budget, this year student loans made through the FFEL program will cost $11 more for every $100 lent than the same student loans made through the Direct Loan program.* These figures include all costs for both programs.

Cost to Taxpayer Per Every $100 Lent in Student Loans*
Fiscal Year	2004	2005	2006
Federal Family Education Loans	$12.09	$12.65	$8.91
Direct Loans	$0.84	$0.92	-$2.06
(Negative costs reflect funds netted to the Treasury)

The Petri-Miller legislation, called the Student Aid Reward (STAR) Act, would increase competition in the student loan programs and enable more colleges and universities to use Direct Loans. Petri and Miller will introduce the STAR Act in the next few weeks, along with a Senate companion bill by Sen. Kennedy. This legislation was introduced in the last Congress as the Direct Loan Reward Act.

"This legislation is about putting students and their families first. The Act will boost student aid by billions and it could raise the maximum Pell scholarship by as much as $1,000 per student," said Miller.

A recent analysis by the Congressional Budget Office (CBO) found that the Petri-Miller proposal would boost Pell Scholarships by more than $12 billion over the next ten years, with even a modest increase in the number of colleges choosing to participate in Direct Loans. In addition, the STAR Act would provide billions in additional aid to low and middle-income graduates students.

* Sources: OMB FY06 Budget Documents:  Page 371
Administrative costs are included for both programs.