April 24th, 2009 - This should be a relatively easy motion for our colleagues to support because it simply instructs the conferees to support a position that the entire Senate adopted unanimously. That provision during our budget debate was to accept the position of maintaining a competitive student loan program that provides students and institutions of higher education with a comprehensive choice of loan products and services.
Madam President, there are three reasons in support of maintaining a competitive student loan system. The first is that 12 million students rely on it today in New Hampshire, in Tennessee, in North Dakota -- all across our country.
Second is that now is not the time to be creating a new half-trillion-dollar national bank that would run up the debt, a bank that would replace 2,000 private lenders, and make $75 billion in new loans a year. That is not a proper function of the U.S. Department of Education.
And third, the cost savings that is alleged is -- and I will be gentle in my words -- a trick on students to make Congressmen look good. What we are going to be doing if we do not preserve this choice is saying to all the students who get a loan that we are going to take money from them and then give it to other students so that Congressmen can go home and brag that he or she has increased the amount of the Pell grants. Let me be specific in what I say.
I was the U.S. Secretary of Education in 1991 and 1992 when we created something called the Direct Loan Program. We have a federal student loan program. Most people who go to college are familiar with it. About two-thirds of the students at our 6,000 different institutions from the University of New Hampshire to the Nashville Auto Diesel College to Harvard to San Francisco State have a Federal grant or a loan. When you get a student loan, you take it to the institution of your choice.
We now have 2,000 lenders who help provide all those different kinds of loans. They give financial aid counseling, they give interest rate deductions, they help students and families plan on how to pay for college. In other words, they service the loans and then the Government supports that by guaranteeing almost all of the loans.
We set up a separate program which we called direct lending. That was, you could come straight to the Government to get your loan. In other words, we created a government bank run by the Department of Education. We said to the students and to the institutions: You make the choice. You may either have a private student loan guaranteed by the Government through your local bank or financial institution, or you may come to the U.S. Department of Education to get your loan.
We have had more than 15 years of experience with that now, and what have the students and institutions said? Three out of four say we like the regular student loan program, we like the choice, we like the private lender. Since we are getting the loan, we like the idea of going to a bank to get a loan because that is what banks do. If you want a car, you go to a car dealer. That may be changing. You may have to go to the Department of Treasury to get a loan the way the country is going. For 15, 16 years we market tested this and so we have that direct loan program.
The situation right now is we have 12 million students at 4,400 different institutions getting $52 billion in loans by their choice from banks instead of from the Government. One-fourth get it from the Government. It has been that way for a long time.
What the President's proposal wants to do is to take all those choices away from the students and say: Line up outside the Department of Education to get your student loan, all 15 million of you. There will be 4,400 institutions and 12 million students who may not like that.
Second point. Is a national bank a good idea? We read in the paper that the Government is going to take stocks in the biggest banks. So we are going to nationalize the banks. Then we read in the paper the Government is going to take stock in General Motors and Chrysler -- hopefully that is not true -- so we are going to have the Government deciding what kind of car we are going to be making, what kind of plants we will have, where the plants are going to be. I cannot think of a worse organization to do that. This is a proposal to say: All right, now the Government is going to be your bank. It is going to be the bank for your student loans. We are going to create a new national bank. It would have over a half trillion dollars in outstanding student loans. It would make 15 million student loans every year, $75 billion in loans a year.
We will run all this out of the U.S. Department of Education, a wonderful Department. I was myself there for 2 years. But what do we know about being a national bank? Not very much. Andrew Jackson would roll over in his grave about the idea of a national bank of this size.
My final point. This proposal, with all due respect, is a trick on students to make Congressmen look good, and here is why.
The budget we originally got said we will take $94 billion in savings and we will spend it on Pell grants. Let's think about that a minute. Common sense will tell you that the Department of Education is not going to know more, is not going to be able to replace 2,000 lenders at a cheaper cost. That simply is not going to work. That is what common sense would tell you.
The Congressional Budget Office has told us that in order for the Department of Education to administer these loans, it would cost about $28 billion over the next 10 years. That is the computation I have made. They estimate that the cost of administering the current Direct Loan Program is about $700 million a year. So if they did them all, that would be at least $2.8 billion a year.
Conservatively speaking, you don't have $94 billion in savings; you have 94 minus 28. So you have around 66. So you have $66 billion that goes somewhere out to banks, maybe to reduce loans, maybe to reduce interest rates, maybe to administer the loan program. But the bottom line is, if the Government takes this program over, it is going to be borrowing money at one-half of 1 percent and loaning it out to 15 million students at 6.8 percent. Borrowing at one-half of 1 percent and loaning it out at 6.8. On every student loan -- and I hope all 15 million students listen to this -- your friendly Government is going to take back 6.5 percent of the 6.8 percent interest you are paying. What is it going to do? The Congressman or Congresswoman can go home to Tennessee or wherever and say: I increased Pell grants. But they won't tell you: I took money from this student to give it to that student. That is not the way to do it.
What we should do, if that spread is too high right now, is let's cut it down -- if the savings is estimated at $90 billion. We know it is closer to $60. Maybe it is $20, maybe it is $30, maybe it is $35. Maybe we should lower the interest rate to 3 or 4 percent or 5 percent or whatever is the appropriate rate.
But that does not justify creating a national bank in the Department of Education to try to handle 15 million loans.
So my argument, Madam President, is this: There are colleagues on both sides of the aisle -- and there are a number of Democrats -- who strongly support the idea of competition and choice in higher education. That is why we have the best higher education system in the world. We have competition and choice all the way through it. The grants and the loans don't go to colleges; they go to the students, and the students choose the college. They can go to Nashville Auto Diesel College if they want or they can go to Harvard; it follows them to the school of their choice. They ought to be able to go to the lending institution of their choice and not line up outside of the Department of Education to get 15 million loans every year. That is not right. It is not the way our country ought to work. So the first is to preserve choice for the 15 million students who now have it at 4,400 institutions.
The second reason is, let's not be creating another nationalized asset in America. We need to be thinking of ways of getting the Government out of the private sector. I mean, this recession is not for the purpose of the Government taking over every auto company, every bank, all the student loans, and every business that is in trouble. We need to be thinking of ways of going the other direction. That is the America we know. That is the America we want.
So we don't need a new national bank.
Arne Duncan is the new Secretary of Education. I think he is the President's best appointee. He ought to be working on paying teachers more for teaching well, creating more charter schools, helping states create higher standards. That is his agenda. I don't think he came from Chicago to Washington to be named banker of the year, which is what he would be doing if he became a national bank president for student loans. That is what this proposal would do unless the Senate sticks to its position.
Finally, I don't want to be a part of any situation which has Congressmen and Senators playing a trick on 15 million students and saying: I am going to borrow money at a quarter of 1 percent and loan it to you at 6.8, and then I am going to take credit for giving the rest of it away. I think that will come home to roost, and it ought to come home to roost.
I appreciate the opportunity to make this motion to instruct, and I hope it will come to a vote. I hope it has the kind of bipartisan support it had before. I hope the President will think of all the other things there are to do that need attention, such as fixing the banks, getting credit flowing, restoring the auto companies, and leave the student loan system to continue to work in the way it should work.
