May 20, 2004

WASHINGTON - Rep. Tom Petri has introduced legislation to strengthen student loans.

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, but the federal government's Office of Management and Budget says that the Direct Loan program is a far better deal for the taxpayers. The Direct Loan program requires no subsidy, and provides taxpayers with considerable savings - up to 14 cents per loan dollar."

Both programs compete for business from individual schools, which choose to offer either one program or the other, but not both.

"But they do not compete on a level playing field," said Petri. "The big taxpayer subsidies the private lenders get through the old program allow them to offer incentives and other services to the institutions which choose the subsidized program.

Petri said that on May 17 he introduced the Direct Loan Reward Act to save the Direct Loan program and help it compete.

"Under my bill, schools which choose the Direct Loan program would receive up to half of the federal savings direct loans generate. Schools would use these funds to provide additional financial aid to students," Petri said. "For instance, if this bill were enacted and the University of Wisconsin - Oshkosh were to switch to direct loans, students who receive the need-based Pell Grants would stand to gain as much as $900 a year in extra aid."