Washington, D.C. – America’s Student Loan Providers today sent a letter to senators urging them to oppose significant budget cuts in federal student loans.
The Senate Health, Education, Labor and Pensions Committee has been instructed to produce $13.65 billion in program savings by September 16 and is expected to do so via legislation reauthorizing the Higher Education Act (HEA). The law expires on September 30.
“The Senate’s first priority should be students and the grant and loan programs that serve them,” the letter states. “Deep budget cuts would make it nearly impossible for Congress to increase access to higher education through much-needed program improvements as part of the [HEA] reauthorization.”
The letter points to two major challenges facing the nation and financial aid programs: “As America faces the awesome scientific, medical and economic challenges of the 21st century, the need for an educated workforce has never been greater. Another challenge will place additional demands on all of our financial aid programs: The largest and most diverse high school classes in history will be graduating over the next several years. “
Deep cuts and other changes could destabilize the Federal Family Education Loan Program (FFELP), the letter warns. Last fiscal year, 5.4 million families relied on its low-cost loans to support their higher education goals. About 83 percent of the nation’s 6,000 eligible schools participate in the program; the rest participate in the Federal Direct Loan Program.
Competition among private loan providers for the right to lend to students, as well as from the direct loan program, “has led to dramatic improvements in the FFELP that have greatly benefited students, parents, schools and taxpayers.”
Finally, the letter expresses opposition to the Student Aid Reward Act (S. 754) and other proposals that would provide taxpayer-funded incentives to influence a school’s choice of loan programs. These initiatives are based on the false assumption that guaranteed loans cost taxpayers more than direct loans, the letter states. In fact, since 2002 guaranteed loans have cost $1.95 billion, a fifth of what direct loans have cost.
A letter identical to the one below was sent to all 100 senators:
August 25, 2005
Dear Senator Frist:
On behalf of our 85 member companies and organizations, America’s Student Loan Providers respectfully urges you to oppose significant budget cuts in federal student loans.
As you know, the Senate Health, Education, Labor and Pensions (HELP) Committee has been instructed to produce $13.65 billion in savings from programs under its jurisdiction. At the same time, the HELP Committee shoulders the weighty responsibility of reauthorizing the country’s higher education law by September 30th to meet the growing challenges of both today’s global economy and demographic shifts.
We respectfully submit that the Senate’s first priority should be students and the grant and loan programs that serve them. Deep budget cuts would make it nearly impossible for Congress to increase access to higher education through much-needed program improvements as part of the Higher Education Act reauthorization. They also could cause significant harm to the Federal Family Education Loan Program (FFELP), one of the federal government’s great success stories.
Since 1965, the private-public guaranteed student loan program has served more than 50 million students with over $485 billion in funds to support their higher education goals. Last fiscal year, of the $59 billion in federal student loans to students and parents, some 76 percent of these loans, or $45 billion, were made by the FFELP to more than 5.4 million families. The availability of low-cost loans has helped Americans from all walks of life fulfill their potential; they have also helped create the educated workforce that has been the foundation of much of the nation’s economic success and standing in the world.
In addition, 83 percent of the 6,000 colleges, universities and schools across the nation eligible to participate in the federal student loan program rely exclusively on the FFELP to meet the lending needs of their students.
The private, nonprofit, and state-based lenders and guaranty agencies that participate in the FFELP have made significant investments in state-of-the-art technology that have simplified and improved the application and repayment process for students and their families and reduced service delivery and program costs. FFELP partners have also invested substantial resources in the development and delivery of innovative public service activities relating to college planning, early awareness, access, financial literacy and debt management – at no cost to taxpayers or to recipients. These efforts have contributed significantly to increasing student participation rates and producing the lowest default rate in the program’s history.
The FFELP has been a tremendous deal for taxpayers too. In FY 2004, the government spent less than $900 million to support the FFELP’s $245 billion in outstanding loans, or less than four-tenths of a cent on every outstanding dollar of loans. Total taxpayer costs to administer the program since 2002 were $1.95 billion.
The key driving force behind the FFELP’s success? Mainly, the robust competition among private loan providers for the right to lend to students, as well as competition from the Federal Direct Student Loan Program (FDSLP). This competition has led to dramatic improvements in the FFELP that have greatly benefited students, parents, schools and taxpayers. Congress wisely recognized the value of choice and competition in federal student loans several years ago and has worked to maintain a level playing field between the two main loan programs. This competitive balance should be maintained, even as the Senate attempts to meet its deficit reduction targets.
Therefore, we oppose legislative proposals, like the Student Aid Reward Act (S. 754), that would provide taxpayer-funded incentives to influence a school’s choice of loan programs, based on the false assumption that one is more expensive than the other. They would destabilize the student loan programs, restrict the choices currently available to schools and universities, and introduce discrimination into the awarding of federal need-based aid. (A recent ASLP analysis, it’s important to point out, found that the two programs’ costs, looking forward, are roughly the same, contrary to CBO and OMB cost estimates, adding to the mountain of evidence that shows projected savings from the FDSLP would never materialize. See www.aslp.us.)
As America faces the awesome scientific, medical and economic challenges of the 21st century, the need for an educated workforce has never been greater. Another challenge will place additional demands on all of our financial aid programs: The largest and most diverse high school classes in history will be graduating over the next several years.
Now is not the time for the country to reduce its investment in higher education. We again urge you to oppose excessive cuts and other changes in federal student loans that could destabilize the student loan program and create more barriers to higher education for the neediest students.
Sincerely,
America’s Student Loan Providers
America’s Student Loan Providers represents education and financial firms and organizations that provide federally guaranteed student loans through the Federal Family Education Loan Program (FFELP), a public-private partnership of schools, students, loan providers, loan guarantors, and the federal government. By leveraging private financial markets and competing for the right to lend to students, the FFELP brings value to students, schools, and taxpayers. Students benefit through lower interest rates, and simplified loan application and approval processes. More than 500 schools have switched to the FFELP since 1998 because it allows them to choose the lender that best meets the financial needs of their students. More information is available at www.aslp.us.