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Washington, D.C. – Congressmen Dale E. Kildee (D-M) and Chris Van Hollen (D-MD) announced they will introduce legislation to permanently close a loophole in the Federal student loan program, which is expected to provide a windfall of nearly $1 billion to lenders that provide students with loans. Backing this effort, the General Accountability Office (GAO) also released a report today deploring this subsidy and calling on the Bush Department of Education to immediately close this loophole through regulation, which is something the Department of Education has refused to do. The new bill would cut off the loophole permanently and redirect the funds directly to the Pell Grant Program to make college more affordable and accessible for students.
“The Bush Administration and the Republican majority in Congress have had plenty of time and numerous opportunities to close this loophole, yet have refused to take any action to do so,” said Kildee. “Now the GAO has debunked the Bush Administration’s argument that this loophole cannot be closed through regulatory action. It is time for either the Department of Education to issue an emergency regulation closing this loophole or for Congress to pass my bill immediately so we can finally put an end to this practice.”
As the ranking member on the Higher Education Subcommittee, Congressman Kildee led the effort to expose this controversy by requesting the GAO study. This study found that a small number of banks that provide student loans will receive almost $1 billion in profits this year from a loophole in our nation’s student loan programs. Worse yet, this study completely rejects the Bush Administration’s misleading argument that this problem can not be fixed by issuing a new regulation. The GAO report specifically calls on the Department of Education to end this practice through regulatory action and states that they have the authority to correct his problem.
The subsidy results from a federal guarantee to the banks of a 9.5% rate of return on certain student loans. On traditional student loans, banks are guaranteed only a 3.6% rate of return, which means that the government subsidizes only two tenths of one percent compared to 6% under the 9.5% loan program. In FY 2001, the 9.5% guarantee cost American taxpayers approximately $200 million, but the costs are projected to be nearly five times greater this fiscal year. The GAO report estimates that on top of this year’s near billion dollar cost, growth in the special subsidy will cost an additional $2.8 billion in future years, if not halted immediately.
Two weeks ago, the U.S. House of Representatives overwhelmingly passed Congressman Kildee’s amendment to the Labor-HHS Appropriations Bill, which partially closed the loophole by prohibiting the Department of Education from using its funds to pay for this government subsidy. Congressman Kildee’s new bill would finally put an end to this practice by closing the loophole permanently and dismantling this outrageous government subsidy. |
