Washington, D.C. - Mr. Speaker, I want to thank the Chairman and the majority for joining us in addressing a problem that has allowed certain lenders to pocket billions of dollars of taxpayer money at the expense of students. The good news is that this bill begins to address that problem. The bad news is that it doesn't do the job fully or permanently.
As the Chairman knows, Congressman Kildee, Congressman Miller and I introduced an earlier bill on this issue. Our legislation would close the 9.5% loophole immediately, permanently and completely - and redirect precious higher education dollars towards the students they are intended to benefit in the first place. But we have been denied the opportunity to vote on that bill.
Instead, we are presented with the bill before us. This bill has two major flaws. First, it addresses the problem for only one year. There is no reason why we should not fix this problem for good right now. Second, the bill before us leaves a big part of the loophole in place. It would continue to permit lenders to make new 9.5%-Eligible loans using the proceeds from existing 9.5% loans - a technique called recycling, which the Government Accountability Office (GAO) says accounts for as much as 40% of the problem. If we are trying to close a loophole that is draining billions in taxpayer dollars, why would we leave 40% of the loophole open?
The majority says that they are leaving part of the loophole open to protect the interests of certain bond investors. But in its September 2004 report, the GAO advised congress that eliminating the 9.5% payments on future loans will not affect lenders’ ability to make required payments to those very same investors. Specifically they say, “Industry experts acknowledge that the government could take action to eliminate the 9.5 percent yield for loans made or purchased in the future without compromising the ability of lenders to meet their obligations with respect to their pre-October 1,1993 tax-exempt bonds.” Indeed, GAO goes on to say that “without government action, the taxpayers remain exposed to additional special allowance payments that can easily and rapidly escalate into billions of dollars.”
Second, I would simply remind my friends on the other side of the aisle that the original purpose of the Higher Education Act was to help America’s students afford college – not provide government-guaranteed, windfall profits to a limited number of bond investors.
The recycling loophole the majority seeks to preserve and perpetuate in contrary to the mission of the Higher Education Act. That loophole guarantees continued abuse in the student loan program and continued loss of millions of dollars to the tax-payer.
Unfortunately, we are missing a golden opportunity to end the abuse once and for all. I will support this bill because when it comes to stopping this abuse, it is better to do something than nothing. But it would be far better to do the job right now rather than allow a continual run on the tax payer at the expense of our students.