Statement of Rep. Tom Petri (R-WI)

Following Today's Hearing on

"Increasing Student Aid Through Loan Reform"

Today's Education and Labor Committee hearing highlighted the benefits of originating all new loans through the Direct Loan Program.  Besides the tremendous cost savings to taxpayers, we heard testimony detailing the positive experiences schools have had as a result of switching to the Direct Loan Program and the benefits the program provides to both students and college aid administrators.

The discussion was fascinating for me because I can remember several years ago when I was a new member of the committee and the head of the Wisconsin higher education agency came to my office.  And in response to a question said that in his experience he thought the Federal Family Education Loan (FFEL) Program was wildly costly to the government, and suggested a direct loan approach which he felt would be much more efficient both for students and for the taxpayers.

After considerable effort to explain and promote the idea, in the late 1980s, Congress agreed to try a pilot program at three schools, including Marquette University in my state of Wisconsin.  The results were so positive that we expanded direct lending, giving schools nationwide a choice of whether to participate in the Direct Loan Program or the FFEL Program.

The non-partisan Congressional Budget Office recently determined that doing away with FFEL could save the taxpayers $94 billion over 10 years while still providing the same loan terms and availability for students.  That sum indicates the huge subsidies the private lenders have received over the years.  They have used a bit of that excess money to entice schools into choosing to offer FFEL loans by offering the schools a few perks, a few tweaks, a little extra in bells and whistles.  But these enticements can't make up for the huge, unnecessary costs of maintaining FFEL.

The fact is that for far too long the FFEL Program has been structured in the interests of lenders and other middlemen.  The Direct Loan Program is tested and has proven to be the most cost-effective, reliable and efficient federal student loan program.