March 30, 2006

WASHINGTON - The House of Representatives passed legislation today to increase college access and affordability, but although several amendments to the bill were considered, the Rules Committee, which determines the procedures for debating bills, barred a proposed amendment by Congressman Tom Petri (R-WI) which could have saved taxpayers $3.35 billion while moving $10 billion of additional savings into Pell Grants for low-income students.

"It's pretty clear why the Rules Committee wouldn't make my amendment in order, and that's that they were afraid that it was actually getting more support and that it was going to pass," said Petri. "This would involve considerable change in the way the student loan business operates. It would have benefited taxpayers and students, but it would have involved a new way of thinking."

"The amendment would have eliminated a lot of layers of unnecessary bureaucracy and overhead, and change is always difficult. But I think that going through this process is drawing attention to the facts, and the battle goes on," Petri said.

Petri's proposal, cosponsored by Congressman George Miller (D-CA), would provide colleges and universities incentives to use the most cost-effective loan program. Since its inception in 1994, federal accounting organizations in the executive and legislative branches of government have found the Direct Loan program to be more cost-effective than the Federal Family Education Loan (FFEL) program.

The Direct Loan and FFEL programs are the main federal student loan programs. The federal government makes loans available directly to students in the Direct Loan program. In the FFEL program, private lenders – backed by government subsidies and guarantees – provide the capital for student loans.

Switching from FFEL to Direct Loans achieves savings by eliminating the corporate subsidies and cutting out the middleman, saving taxpayers as much as $6 on every $100 loaned, according to President Bush’s 2007 budget documents, since both programs offer the same loan terms to students. Both the Congressional Budget Office and the President’s budget office have called into question the cost effectiveness of the FFEL program.

The Petri-Miller amendment would have encouraged schools to participate by giving them half of the savings it would generate to provide additional Pell Grant scholarship and graduate fellowship money for low- and middle-income students. Students at some colleges and universities would have received an additional scholarship of as much as $1,000 per year.

The Congressional Budget Office, Congress' non-partisan research arm which estimates the potential cost of legislation, estimated that the Petri amendment would have saved $13.4 billion if only 15 percent of schools now offering loans under the FFEL program switched to Direct Loans. Of that, $3.35 billion could have gone toward deficit reduction while $10.05 billion would have been redirected to increase the Pell Grant program for low-income students.

Petri's amendment was based on his bill H.R. 1425, the Student Aid Reward (STAR) Act, which the congressman introduced in March 2005, and which he said he will continue to advance.