Washington, D.C. - After months of pressure from House Democrats to end ongoing abuse in the federal student loan program, President Bush today signed a bill today which curtails that abuse. Although the bill does not close the so-called 9.5% loophole completely or permanently, Congressman Chris Van Hollen (D-MD) supported the legislation (HR 5186, the Taxpayer-Teacher Protection Act) because it marks the first step towards restoring fiscal responsibility and fairness to the federal student lending program.
“The President’s signing of today’s bill is a welcome effort to finally address this issue,” said Van Hollen. “While I am pleased that we have taken a step forward, I am disappointed that we did not finish the job completely. Hopefully the Republican leadership will join us in passing legislation in the 109th Congress to end this scandal once and for all.”
Van Hollen led the effort to expose this controversy by asking the Government Accountability Office to investigate the 9.5% lender subsidy on October 17, 2003. After receiving the results of that investigation, Van Hollen and Congressman Dale Kildee (D-MI) offered an amendment to the FY05 Labor-HHS Appropriations Bill to stop funding for the subsidy. The House passed the Van Hollen-Kildee amendment (413-3) on September 9, 2004.
Van Hollen and Kildee later introduced a stand-alone bill, The Emergency Loan Abuse Prevention Act (HR 5113), which would close the loophole completely and permanently and redirect the savings to the nation’s neediest students through the Pell Grant program. Unfortunately, the House Republican Leadership refused to consider the Van Hollen-Kildee legislation and belatedly offered their own bill (HR 5186), which addresses about 60% of the problem, but continues to leave open a loophole through a technique known as “recycling.” By leaving the “recycling” provision open, lenders will be able to take loan proceeds (interest payments from students and subsidies paid by the Federal government to lenders) and use them to issue or invest in loans that receive the 9.5% rate.
According to Congressional Budget Office (CBO) estimates, HR 5186 will save American taxpayers a total of $280 million. By contrast, the immediate, complete and permanent solution envisioned by the Van Hollen-Kildee legislation would save taxpayers at least $5 billion over the remaining life of the loans.