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Rep. Tom Petri (R-WI) hailed the passage of legislation today as a major advance for student loan reforms he has advocated for 26 years.
By a vote of 253 to 171, the House of Representatives approved H.R. 3221, the Student Aid and Fiscal Responsibility Act of 2009. Among other initiatives, this bill would eliminate the wasteful Federal Family Education Loan (FFEL) program (aka "guaranteed loans") in favor of the more cost-effective alternative Direct Loan program.
"We have two federal student loan programs," Petri said. "Under FFEL the government provides subsidies to private lenders to make student loans and pays them back if a borrower defaults. The Direct Loan program provides loans on the same or better terms by eliminating the middleman and issuing the loans directly from the government, with all servicing and bill collection being handled by private companies operating through performance-based contracts. Doing away with the unnecessary level of profit-making bureaucracy will save the taxpayers up to $87 billion over the next 10 years - money which will be used to improve student aid and lower the deficit."
"Today is a victory for students and taxpayers," he said.
The Senate has yet to consider the legislation, but is considered likely to approve it.
Labeled "the originator of the Direct Loan program" by Education and Labor Committee Chairman George Miller (D-Calif.), Petri has championed the direct loan concept since 1983, assisted the Clinton Administration in creating the Direct Loan program in 1993, and has defended it against persistent attacks by the institutions which profit from guaranteed loans.
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