July 8, 2004

WASHINGTON -- Congressman Tom Petri (R-WI) announced today that the American Council on Education (ACE), representing every major higher education organization, has contacted several members of Congress in support of using federal savings generated by Direct Student Loans to increase aid for low-income students.

"While this isn't a direct endorsement, this is a significant advance for me and Congressman George Miller (D-CA) in our effort to strengthen the Direct Loan program," Petri said, noting that Sen. Ted Kennedy (D-MA) is also working on a similar effort.

"While we are not endorsing either the House or Senate legislation at this time, we are enthusiastic about exploring the concept of how best to use any resources gained through the Direct Loan Program to benefit low-income students," the ACE explained in a June 30 letter addressed to every senator and representative on Congress's education committees. "We believe the proposals that have been put forward in the House by Representatives Miller and Petri, and in the Senate by Senator Kennedy, have substantial merit, and we urge you to give them careful consideration."

Petri, the Vice Chairman of the House Committee on Education and the Workforce, explained that the federal government maintains two student loan programs. The Federal Family Education Loan (FFEL) program subsidizes private bank loans while the Direct Loan program provides loans to students directly from the U.S. Treasury.

"I've championed the direct loan approach for 20 years," said Petri. "Both serve students well, providing virtually identical benefits to students, but the federal government's Office of Management and Budget says that the Direct Loan program is a far better deal for the taxpayers. Both programs compete for business from individual schools, which choose to offer either one program or the other.

"But the programs do not compete on a level playing field," said Petri. "The subsidy (cost to taxpayers) on a direct loan is rarely higher than $1 for every $100 lent. Private lenders providing FFEL loans receive $6 to $8 more for every $100 lent. That's an awfully big advantage, but lenders say they can't make a profit without it. So, every year lenders receive billions of dollars in taxpayer subsidies to provide the exact same loan that could be provided by Direct Loans."

Petri said that on May 17 he introduced the Direct Loan Reward Act (H.R. 4370) to help level the playing field. Schools using Direct Loans would receive half of the savings the loans generate. The savings come from the subsidies that would have gone to private lenders if the school had used the FFEL program. Schools must use the new money to provide additional financial aid to lower-income students receiving Pell Grants. Students at both new and current direct loan schools would be eligible for the additional aid.

Because the bill generates savings from new Direct Loan program enrollees, it would increase student aid without costing taxpayers any new money. Students at schools participating in Direct Loans could receive over $2,000 a year in additional Pell Grant aid through the Direct Loan Reward Act, making the total Pell Grant award worth more than $6,000 a year.

The ACE letter was sent on behalf of the American Association of Collegiate Registrars and Admissions Officers; the American Association of Community Colleges; the American Association of State Colleges and Universities; the American Council on Education; the Association of American Universities; the Association of Jesuit Colleges and Universities; the Council for Opportunity in Education; the Hispanic Association of Colleges and Universities; the National Association for Equal Opportunity in Higher Education; the National Association of Independent Colleges and Universities; and the National Association of State Universities and Land-Grant Colleges.