Report text available as:

(PDF provides a complete and accurate display of this text.) Tip?



110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-583

======================================================================



 
         ENSURING CONTINUED ACCESS TO STUDENT LOANS ACT OF 2008

                                _______
                                

 April 14, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. George Miller of California, from the Committee on Education and 
                     Labor, submitted the following

                              R E P O R T

                        [To accompany H.R. 5715]

    The Committee on Education and Labor, to whom was referred 
the bill (H.R. 5715) to ensure continued availability of access 
to the Federal student loan program for students and families, 
having considered the same, report favorably thereon without 
amendment and recommend that the bill do pass.

                               I. Purpose

    The purpose of H.R. 5715, the Ensuring Continued Access to 
Student Loans Act of 2008, is to ensure continued availability 
of access to the Federal student loan program for students and 
families.

    II. Committee Action Including Legislative History and Votes in 
                               Committee


                             110TH CONGRESS

Full Committee hearing on ``Ensuring the Availability of Federal 
        Student Loans''

    On Friday, March 14, 2008, the Committee on Education and 
Labor held a hearing in Washington, D.C., on ``Ensuring the 
Availability of Federal Student Loans.'' The purpose of the 
hearing was to highlight the options that exist through the 
Department of Education to prevent a shortage of student loan 
availability in the fall of 2008, and to underscore that credit 
market constraints may present a problem for some lenders' 
access to capital, but such constraints do not present a 
problem for borrowers' access to Federal student loans. 
Testifying before the full Committee were Hon. Margaret 
Spellings, U.S. Secretary of Education; Paul Wozniak, Director 
and Manager, Education Loan Group--UBS; Terry Muilenburg, 
Senior Vice President, USA Funds; Roberta Johnson, Director, 
Office of Student Financial Aid, Iowa State University; Charlie 
C. ``Chuck'' Sanders, Jr., President and CEO, South Carolina 
Student Loan Corporation; Sarah Bauder, Director, Office of 
Financial Aid, University of Maryland.

Introduction of the ``Ensuring Continued Access to Student Loans Act of 
        2008''

    On Tuesday, April 8, 2008, Representatives George Miller 
(D-CA), Howard P. ``Buck'' McKeon (R-CA), Ruben Hinojosa (D-
TX), Jason Altmire (D-PA), Carol Shea-Porter (D-NH), Phil Hare 
(D-IL), Rush D. Holt (D-NJ), Joe Courtney (D-CT), Raul M. 
Grijalva (D-AZ), John P. Sarbanes (D-MD), Robert C. ``Bobby'' 
Scott (D-VA), Lynn C. Woolsey (D-CA), Timothy H. Bishop (D-NY), 
Mazie K. Hirono (D-HI), David Loebsack (D-IA), David Wu (D-OR), 
and Joe Sestak (D-PA) introduced H.R. 5715, the Ensuring 
Continued Access to Student Loans Act of 2008, a bill to ensure 
continued availability of access to the Federal student loan 
program for students and families.

Full Committee markup of H.R. 5715

    On Wednesday, April 9, 2008, the Committee on Education and 
Labor considered H.R. 5715 in legislative session, and reported 
the bill favorably to the House of Representatives. The 
Committee reported the bill by voice vote. The Committee 
rejected one amendment by roll-call vote.

                        III. Summary of the Bill

    Increased unsubsidized loan limits for students: H.R. 5715 
increases annual unsubsidized loan limits by $2,000 for 
undergraduates and graduate students. It also increases the 
aggregate loan limits to $31,000 for dependent undergraduates 
and to $57,500 for independent undergraduate students.
    Delayed repayment of parent PLUS loans: Currently PLUS loan 
borrowers--parents--go into repayment 60 days after 
disbursement of the loan. H.R. 5715 gives families an option of 
not entering repayment for up to 6 months after a student 
leaves school.
    PLUS loan eligibility for struggling homeowners: Under 
current law, parents with an adverse credit history are 
ineligible to receive a parent PLUS loan, except under 
extenuating circumstances. In light of the current housing 
market, H.R. 5715 temporarily qualifies up to 180 day 
delinquency on home mortgages as an extenuating circumstance, 
therefore making it more possible for parents struggling with 
the current housing market to secure loans for their children.
    Lender of last resort flexibility: H.R. 5715 makes clear in 
statute that the Secretary of Education has the authority to 
advance Federal funds to Guaranty Agencies in the case that 
they do not have sufficient capital, and also clarifies the 
existing authorization for the appropriations of funds to make 
such advances. Further, the bill allows a Guaranty Agency to 
designate a school (rather than an individual student) as a 
``lender of last resort school,'' in accordance with guidelines 
set by the Secretary.
    Authority for the Secretary of Education to purchase FFEL 
loan assets: H.R. 5715 gives the Secretary the temporary 
authority, upon a determination that there is inadequate 
availability of loan capital to meet demand for loans, to 
purchase loans from FFEL lenders. Such purchases could only be 
made in the case that loan purchases are revenue-neutral or 
beneficial to the Federal Government.
    Federal institutions' participation: H.R. 5715 includes a 
section expressing the Sense of the Congress that the Federal 
Financial Institutions and entities (including the Federal 
Financing Bank, the Federal Home Loan Banks, and the Federal 
Reserve) should consider using, in consultation with the 
Secretaries of Education and the Treasury, available 
authorities, if needed, to assist in ensuring continued student 
loan access.

                          IV. Committee Views

    In recent months, turmoil in the U.S. credit markets has 
made it difficult for some lenders in the federally guaranteed 
student loan program to secure the capital needed to finance 
college loans, leading some lenders to scale back their lending 
activity. While no student or college has reported any problems 
accessing Federal student aid to date, the Committee believes 
it is only prudent for the Federal Government to make sure that 
contingency plans are in place that would provide students and 
families with continued, uninterrupted access to Federal loans, 
regardless of what's happening in the credit markets. The 
Ensuring Continued Access to Student Loans Act of 2008 would 
provide new protections, in addition to clarifying those in 
current law, to ensure that families can continue to access the 
loans they need to pay for college.

Overview of current credit market conditions

    The U.S. capital market has been experiencing stress as a 
result of the sub-prime mortgage crisis and investor 
uncertainty about the condition of the economy. Mortgage 
default risk is spread widely across and intertwined throughout 
the nation's economy. The unclear impact of this risk on 
financial institutions has caused lenders of all types to 
reduce lending activity or to make loans at higher interest 
rates. Similarly, the ability of private companies to obtain 
funds through the credit markets has been affected. The 
inability of consumers and businesses in all parts of the 
economy to easily borrow funds has driven central banks around 
the world to take action to encourage the lending of funds to 
worthy borrowers and to reinvigorate the credit markets. In 
addition, the sub-prime mortgage crisis has put downward 
pressure on economic growth, because fewer or more expensive 
loans decrease investment by businesses and consumer spending, 
which drive the economy.

Current credit market conditions related to student loans

    Recently, some student loan lenders have encountered 
difficulties in accessing the capital market to finance their 
lending activity. Some lenders, including 4 of the top 20 
originators, have announced that they are exiting the Federal 
Family Education Loan Program (FFELP) or curtailing their 
lending by not originating Federal student consolidation loans. 
In addition, some private student loan lenders have announced 
that they will be more selective in making loans to students 
and/or be more selective in their relationships with certain 
types of schools or leave the private loan market altogether. 
The heightened concern about the difficulties facing certain 
student loan lenders and the potential of significantly 
diminished student access to education loans has led some to 
call for government intervention in the capital markets. Doing 
so, in some instances, may potentially help ensure that 
students and families can access Federal student loans.
    To address these challenges posed by current conditions in 
the credit markets, the Committee included specific provisions 
in H.R. 5715 aimed at ensuring that turmoil in the U.S. credit 
markets does not prevent any students or parents from accessing 
the financial aid they need to pay for college.

Lender of last resort

    Under existing law, FFELP guaranty agencies are obligated 
to serve as lenders-of-last resort to avert any possible 
problem in access to student loans, thereby providing a 
nationwide network of backstop lenders. As part of their 
contracts with the Secretary, guaranty agencies are required to 
develop rules and procedures for a lender-of-last resort (LLR) 
program. Under these programs, guaranty agencies themselves, or 
in conjunction with another FFELP lender, make LLR loans to 
borrowers who show that two lenders have denied providing a 
borrower with a Federal student loan. Guaranty agencies or 
other lenders who make LLR loans qualify for 100 percent 
insurance against borrower default, rather than the standard 97 
percent insurance. Moreover, the law gives the Secretary the 
authority to advance federal funds to guaranty agencies, on 
appropriate terms and conditions, to be used to make LLR loans, 
if needed.
    Although a large scale LLR program has not been previously 
implemented for the FFELP, the Department had established and 
was ready to make operational a national LLR program in 1998, 
when some FFELP lenders were then indicating that they might 
withdraw from the FFELP. In addition, by preparing in advance, 
the Department had optimized an approach to minimize the burden 
on students. Rather than requiring individual students to 
document lenders' refusals to make loans, the plan provided for 
an option for a school unable to locate a lender willing to 
provide loans to its students. Such a school could notify its 
state's designated guaranty agency and certify that its 
students have been unable to obtain loans. Under the plan, the 
guaranty agency was then to review the school's certification 
of need for LLR loans, and then (1) provide LLR loans itself, 
if necessary with federal advances, or (2) provide them under 
an agreement with a third-party lender, if necessary with 
federal advances. Because schools are already accustomed to 
working the guaranty agencies, the plan took advantage of 
preexisting relationships under the FFELP program without 
unduly complicating the process for schools and borrowers.
    H.R. 5715 aims to address the issues raised by Terry 
Muilenburg, Senior Vice President of USA Funds, at the March 
14th Committee on Education and Labor hearing to ensure that 
guaranty agencies can better carry out the LLR provisions by:
           (providing specific authority to carry out 
        the program on a school wide basis, as opposed to 
        requiring individual students to document that two 
        lenders have denied making them a loan, in addition to 
        being able to provide LLR loans to individual students; 
        and,
           clarifying that the Secretary has the 
        authority to advance funds to guaranty agencies under 
        the LLR program to fulfill the goal of ensuring 
        students' access to loans.
    In responding to a letter sent to the Secretary by Chairman 
George Miller, the Secretary confirmed her ability to provide 
funding advances to guaranty agencies, if needed. While such a 
clarification is appreciated, the Committee believes that 
permanent clarification is needed to ensure that there is no 
ambiguity concerning the Secretary's authority in the future.

Other options for institutions

    The Committee believes that the LLR provisions should be a 
priority for the Secretary to implement so that FFELP schools 
can continue to exist in the current program without disruption 
to their students. It is the strong belief of the Committee 
that it is up to each 4 individual college and university as to 
what program they participate in: either FFELP or the Direct 
Student Loan Program. Currently, Direct Loans account for about 
20 percent of all federal college loan volume, but accounted 
for as much as 34 percent in years past.
    The Committee believes there are clear steps that 
institutions can take right now to be ready in the case that 
their students are unable to secure loans from independent 
lenders participating in the FFELP. The Committee believes that 
institutions can and should take steps to consider entering the 
Direct Loan Program for this fall, even if they choose to not 
utilize the program. This will allow institutions to have this 
option on standby. The school certification and system 
processes for the Direct Loan Program are very similar to 
processes institutions already use to offer Pell Grants.
    Further, the Secretary of Education should take steps to 
ensure that the Department is ready to help schools that meet 
established criteria to use the LLR option or help schools that 
so desire to utilize the DL program on either a temporary or 
permanent basis.

Secretary's temporary authority to purchase loans

    FFELP lenders fund the loans they make to students in a 
variety of ways. Depository banks and credit unions, for 
example, use funds deposited by consumers into their checking 
and savings accounts to make loans to students. Other lenders 
may borrow money by issuing bonds to investors who agree to 
lend money in exchange for receiving payments of interest and 
repayment of principal.
    Another way some student loan lenders fund the loans they 
make to students is through a process called 
``securitization.'' This process involves lenders pooling their 
loans together and selling securities to investors, which may 
be bought and sold in ways similar to how shares of a company 
are traded on the stock market. These securities are generally 
known as ``asset-backed securities'' (ABS) because the student 
loans serve as collateral backing up the securities. Investors 
who buy these securities are compensated with payments of 
interest. These investors assume the risk that the loans, 
pledged as collateral backing up the security, are repaid and 
generate the cash flow necessary to pay the interest due on 
their security investment. Lenders who sell these securities to 
investors use the proceeds, in turn, to make more loans to 
students.
    The interest rate the issuer of an ABS pays to investors 
who buy them can be determined in a variety of ways. In some 
cases, the ABS may carry a ``floating rate.'' Similar to an 
adjustable rate mortgage, the interest paid on a floating rate 
ABS is adjusted periodically according to a predetermined 
formula, usually pegged to an index rate such as the ``prime 
rate'' or the rate of interest paid on U.S. Treasury Bills. In 
other cases, the ABS may be an ``auction-rate security,'' where 
the interest paid on the ABS is a floating rate that is 
periodically reset through an auction process, usually 
conducted on a weekly or monthly basis. Investment banks, such 
as Goldman-Sachs, UBS, and others, conduct these auctions, 
serving as an intermediary between the lender issuing the 
securities and the investors interested in purchasing the 
securities. At these auctions, investors bid on the interest 
rate they will accept for the subsequent week or month until 
the next auction occurs. In addition, investors may buy or sell 
the securities to others. As recently reported in the media, 
some of these auctions have ``failed,'' meaning there have been 
no investors interested in buying the securities. When an 
auction fails, the securities are left in the hands of 
investors who already hold them, and the interest rate paid to 
the investors gets reset based on a formula written in the 
original offering documents when the securities were first 
sold.
    The Committee is concerned that in recent months, the 
failing of these auctions has left many lenders without a means 
of raising capital. This issue was raised by several witnesses 
at the March 14th Committee on Education and Labor hearing, but 
in particular by Charlie C. ``Chuck'' Sanders, Jr., President 
and CEO, South Carolina Student Loan Corporation. To address 
this issue, H.R. 5715 gives the Secretary the temporary 
authority, upon a determination that there is an inadequate 
availability of loan capital to meet the demand for loans, to 
purchase loans from FFELP lenders. Such purchases could only be 
made in the case that the purchases were revenue-neutral or 
beneficial to the Federal Government. H.R. 5715 also provides 
the Secretary the ability to let contracts for the servicing of 
purchased loans with entities that have extensive and relevant 
experience. In addition to helping ensure the continued 
existence of the FFELP, the bill requires lenders who choose to 
take advantage of this provision to reinvest the funds back 
into the FFEL program.

Increasing loan limits

    The Committee is concerned about the ever increasing cost 
of college, especially given that college costs have been 
increasing more rapidly than available grant aid, federal 
loans, and families' ability to pay. While loans are not the 
preferred method of paying for college, increasing costs and 
the failure of grant aid to keep pace with the increases have 
led many students to finance their higher education using the 
Federal student loan programs. According to the Department of 
Education, 33 percent of all undergraduates (including those 
attending part-time and full-time) borrowed from the Stafford 
loan programs in academic year 2003-2004. Further, 42 percent 
of students at public 4-year institutions, and 53 percent at 
private not-for-profit 4-year institutions borrowed from the 
Stafford loan programs in the same year. (Wei, C.C., and 
Berkner, L. (2008)). Trends in Undergraduate Borrowing II: 
Federal Student Loans in 1995-96, 1999-2000, and 2003-04 (NCES 
2008-179rev). National Center for Education Statistics, 
Institute of Education Sciences, U.S. Department of Education. 
Washington, DC.).
    Further, students are relying more and more on private 
education loans to fund their college educations. Last year, 
private loans totaled nearly $20 billion, accounting for one 
out of every five dollars borrowed for college, according to 
the College Board. A decade ago, private loans accounted for 
only 4 cents of every loan dollar. The current market 
conditions have caused lenders to tighten borrowing standards 
on all consumer debt, including private student loans. While 
the Committee believes that students and families should only 
borrow the minimum amount needed to finance higher education, 
limited increase in the loan limits in the federal programs 
will help ensure uninterrupted access to higher education for 
those students who need to rely on costlier private loans.
    H.R. 5715 aims to help alleviate the challenges facing 
students in paying for college. In particular, the bill 
provides for increased annual and aggregate Federal student 
loan limits for undergraduates and graduates, thereby helping 
borrowers to finance a higher portion of their educational 
costs as well as helping to reduce their reliance on costlier 
private education loans. A chart provided in the section-by-
section outlines current law for both dependent and independent 
students and the proposed changes in H.R. 5715. The Committee 
expects that these additional funds will be used by students to 
help pay for their education and not provide institutions with 
an invitation to increase their costs.

PLUS loans provisions

    Financing higher education often falls not only on 
students, but on their families as well. Just as Federal 
student borrowing has increased in recent years, parents have 
taken out loans through the Federally-backed PLUS loan program 
at increasing rates. Currently PLUS loan borrowers--parents--go 
into repayment 60 days after disbursement of the loan. This 
bill would give families an option of not entering repayment 
for up to 6 months after a student leaves school, making it 
consistent with the way that students in the Stafford loan 
program enter into repayment. Introducing more flexible 
repayment options in this program will help to ensure that 
families already struggling in tough economic times will still 
be able to provide assistance to their children while they are 
in school.
    Additionally, under current law, parents with an adverse 
credit history are ineligible to receive a parent PLUS loan, 
except under extenuating circumstances. The Committee is 
concerned that many individuals who are struggling in the 
current credit markets are further strained in their efforts to 
afford college and qualify for loans. In light of the current 
housing market, the bill temporarily qualifies up to 180 day 
delinquency on home mortgages as an extenuating circumstance, 
therefore making it more possible for parents struggling with 
the current housing market to secure loans for their children's 
postsecondary education.

Actions by other agencies--Sense of Congress

    Much has been discussed about other agencies and their 
abilities to assist in addressing the challenges faced by 
lenders participating in the federal student loan program.
    H.R. 5715 includes a Sense of the Congress that the Federal 
Financial Institutions and entities (including the Federal 
Financing Bank, the Federal Home Loan Banks, and the Federal 
Reserve) should consider using, in consultation with the 
Secretaries of Education and the Treasury, available 
authorities, if needed, to assist in ensuring continued student 
loan access. Further the Sense of Congress clarifies that such 
efforts should not deter the work within the Department of 
Education to ensure that the lender of last resort option is 
ready and operational in the unlikely event it is needed for 
students and families, nor should such efforts limit or delay 
the Secretary's authority to purchase FFELP loans. In addition, 
the Committee believes that the efforts undertaken in this 
legislation should not slow down or stop efforts by the 
Department of Treasury or the Federal Reserve to take 
additional action through current authorities to provide 
additional liquidity into the market.

                     V. Section-by-Section Analysis


Sec. 1. Short title

    This section cites the short title of H.R. 5715 as the 
``Ensuring Continued Access to Student Loans Act of 2008.''

Sec. 2. Increasing unsubsidized Stafford loan limits for undergraduate 
        and graduate students

    This section increases annual unsubsidized loan limits by 
$2,000 for each year of undergraduate and graduate school. It 
also increases the aggregate loan limits to $31,000 for 
dependent undergraduates and $57,500 for independent 
undergraduate students. Increased levels under this section 
apply to loans issued on or after July 1, 2008. Amended levels 
are reflected in italic below:

                                               STUDENT LOAN LIMITS
----------------------------------------------------------------------------------------------------------------
                                                            Subsidized      Unsubsidized            Total
----------------------------------------------------------------------------------------------------------------
                                                  ANNUAL LIMITS

Dependent Undergraduates:
    First-Year Students...................................      $3,500      (3,500)  $5,500      (3,500)  $5,500
    Second-Year Students..................................       4,500      (4,500)   6,500      (4,500)   6,500
    Third-Year Students...................................       5,500      (5,500)   7,500      (5,500)   7,500
    Fourth-Year+ Students.................................       5,500      (5,500)   7,500      (5,500)   7,500
Independent Undergraduates:
    First-Year Students...................................       3,500      (4,000)   6,000      (7,500)   9,500
    Second-Year Students..................................       4,500      (4,000)   6,000      (8,500)  10,500
    Third-Year Students...................................       5,500      (5,500)   7,000     (10,500)  12,500
    Fourth-Year+ Students.................................       5,500      (5,500)   7,000     (10,500)  12,500
    Graduate Students.....................................       8,500     (12,000)  14,000     (20,500)  22,500

                                                AGGREGATE LIMITS

    Dependent Undergraduates..............................      23,000  ...................     (23,000)  31,000
    Independent Undergraduates............................      23,000  ...................     (46,000)  57,500
    Graduate Students.....................................      65,500  ...................              138,500
----------------------------------------------------------------------------------------------------------------

Sec. 3. Grace period for parent PLUS loans

    This section amends the repayment of PLUS loans to give 
families an option of not entering repayment for up to 6 months 
after a student leaves school. This section applies to new 
loans issued on or after July 1, 2008.

Sec. 4. Special rules for PLUS loans

    This section adds a special rule for the PLUS loan program 
to qualify up to 180 day delinquency on home mortgages as an 
extenuating circumstance for loans made on or after July 1, 
2008 and before July 1, 2009.

Sec. S. Lender-of-last-resort

    This section amends the Lender-of-Last-Resort provisions to 
allow a Guaranty Agency to designate a school (rather than an 
individual student) as a ``lender of last resort school,'' in 
accordance with guidelines set by the Secretary. This section 
will ensure all student and parent borrowers at such 
institutions would be eligible to receive lender-of-last-resort 
loans from Guaranty Agencies in a less cumbersome manner.

Sec. 6. Mandatory advances

    This section includes language to clarify that the 
Secretary of Education is authorized to advance Federal funds 
to Guaranty Agencies in the case that they do not have 
sufficient capital to fulfill their obligation and clarifies 
the existing authorization for the appropriations of funds to 
make such advances.

Sec. 7. Temporary authority to purchase student loans

    This section gives the Secretary the temporary authority, 
upon a determination that there is inadequate availability to 
meet demand for loans, to purchase loans from FFEL lenders. 
Such purchases could only be made in the case that purchases 
are revenue-neutral or beneficial to the Federal Government, 
and lenders must use proceeds from such transactions in a 
manner consistent with ensuring continued participation of such 
lender in the Federal student loan programs under Part B of the 
Higher Education Act of 1965. The Secretary's authority under 
this section is from the date of enactment of this Act until 
July 1, 2009. H.R. 5715 also provides the Secretary the ability 
to let contracts for the servicing of purchased loans with 
entities that have extensive and relevant experience.

Sec. 8. Sense of Congress

    This section includes a Sense of the Congress that the 
Federal Financial Institutions and other entities (including 
the Federal Financing Bank, the Federal Home Loan Banks, and 
the Federal Reserve) should consider using, in consultation 
with the Secretaries of Education and the Treasury, available 
authorities, if needed, to assist in ensuring continued student 
loan access.

                     VI. Explanation of Amendments

    During consideration of H.R. 5715, Mr. Price of Georgia 
offered an amendment to require budgetary offsets for any 
provision in the legislation resulting in a cost to the Federal 
Government. Opponents of the amendment pointed out that the 
bill would be fully paid for in compliance with House Paygo 
Rules. The amendment was defeated by a vote of 16 ayes and 21 
nays.

           VII. Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1, the Congressional 
Accountability Act, requires a description of the application 
of this bill to the legislative branch. H.R. 5715 would apply 
to legislative branch employees in the same way it applies to 
other individuals, by protecting their access to student loans.

                    VIII. Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act (as amended by Section 101(a)(2) of the Unfunded 
Mandates Reform Act, P.L. 104-4) requires a statement of 
whether the provisions of the reported bill include unfunded 
mandates.
    This issue is addressed by the CBO cost estimate letter 
included in section XIII of this report.

                         IX. Earmark Statement

    H.R. 5715 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9(d), 9(e) or 9(f) of rule XXI.

                              X. Roll Call



    XI. Statement of Oversight Findings and Recommendations of the 
                               Committee

    In compliance with clause 3(c)(1) of rule XIII and clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
the Committee's oversight findings and recommendations are 
reflected in the body of this report.

            XII. New Budget Authority and CBO Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives and section 
308(a) of the Congressional Budget Act of 1974 and with respect 
to requirements of clause 3(c)(3) of rule XIII of the Rules of 
the House of Representatives and section 402 of the 
Congressional Budget Act of 1974, the CBO estimate of the 
reported bill was not available at the time of filing this 
report. The Committee adopts as its own the CBO cost estimate 
as soon as it becomes available.

      XIII. Statement of General Performance Goals and Objectives

    In accordance with clause 3(c) of House rule XIII, the goal 
of H.R. 5715 is to make sure contingency plans are in place to 
provide students and families with continued, uninterrupted 
access to federal loans, regardless of issues affecting the 
credit markets.

                XIV. Constitutional Authority Statement

    Under clause 3(d)(1) of rule XIII of the Rules of the House 
of Representatives, the Committee must include a statement 
citing the specific powers granted to Congress in the 
Constitution to enact the law proposed by H.R. 5715. The 
Committee believes that the amendments made by this bill, which 
ensure continued access to student loans, are within Congress' 
authority under Article I, section 8, clause 18 of the 
Constitution of the United States.

                         XV. Committee Estimate

    Clause 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison of the 
costs that would be incurred in carrying out H.R. 5715. 
However, clause 3(d)(3)(B) of that rule provides that this 
requirement does not apply when the Committee has included in 
its report a timely submitted cost estimate of the bill 
prepared by the Director of the Congressional Budget Office 
(CBO) under section 402 of the Congressional Budget Act. As 
noted in Section XII of this report, the CBO estimate of the 
reported bill was not available at the time of filing this 
report. The Committee adopts as its own the CBO cost estimate 
as soon as it becomes available.

       XVI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

HIGHER EDUCATION ACT OF 1965

           *       *       *       *       *       *       *


TITLE IV--STUDENT ASSISTANCE

           *       *       *       *       *       *       *


             Part B--Federal Family Education Loan Program

SEC. 421. STATEMENT OF PURPOSE; NONDISCRIMINATION; AND APPROPRIATIONS 
                    AUTHORIZED.

  (a) * * *
  (b) Authorization of Appropriations.--For the purpose of 
carrying out this part--
          (1) * * *

           *       *       *       *       *       *       *

          (4) there are authorized to be appropriated (A) the 
        sum of $12,500,000 for making advances after June 30, 
        1968, pursuant to sections 422 (a) and (b), and (B) 
        such sums as may be necessary for making advances 
        pursuant to section 422(c), for the reserve funds of 
        State and nonprofit private student loan insurance 
        [programs, and] programs,
          (5) there are authorized to be appropriated such sums 
        as may be necessary for the purpose of paying a loan 
        processing and issuance fee in accordance with section 
        428(f) to guaranty [agencies.] agencies, and
          (6) there is authorized to be appropriated, and there 
        are appropriated, out of any money in the Treasury not 
        otherwise appropriated, such sums as may be necessary 
        for the purpose of carrying out section 422(c)(7).
Sums appropriated under paragraphs (1), (2), (4), and (5) of 
this subsection shall remain available until expended. No 
additional sums are authorized to be appropriated under 
paragraph (3) or (4) of this subsection by reason of the 
reenactment of such paragraphs by the Higher Education 
Amendments of 1986.

           *       *       *       *       *       *       *


SEC. 428. FEDERAL PAYMENTS TO REDUCE STUDENT INTEREST COSTS.

  (a) * * *
  (b) Insurance Program Agreements To Qualify Loans for 
Interest Subsidies.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Repayment period.--(A) * * *

           *       *       *       *       *       *       *

          (C) In the case of a loan made under section 428A[, 
        428B,] or 428C, the repayment period shall begin on the 
        day the loan is disbursed, or, if the loan is disbursed 
        in multiple installments, on the day of the last such 
        disbursement, and shall exclude any period of 
        authorized deferment or forbearance.

           *       *       *       *       *       *       *

  (j) Lenders-of-Last-Resort.--
          (1) General requirement.--In each State, the guaranty 
        agency or an eligible lender in the State described in 
        section 435(d)(1)(D) of this Act shall make loans 
        directly, or through an agreement with an eligible 
        lender or lenders, to [students eligible to receive 
        interest benefits paid on their behalf under subsection 
        (a) of this section who are otherwise unable to obtain 
        loans under this part] students and parents who are 
        otherwise unable to obtain loans under this part 
        (except for consolidation loans under section 428C) or 
        who attend an institution of higher education in the 
        State that is designated under paragraph (4). Loans 
        made under this subsection shall not exceed the amount 
        of the need of the borrower, as determined under 
        subsection (a)(2)(B), nor be less than $200. The 
        guaranty agency shall consider the request of any 
        eligible lender, as defined under section 435(d)(1)(A) 
        of this Act, to serve as the lender-of-last-resort 
        pursuant to this subsection.
          (2) Rules and operating procedures.--The guaranty 
        agency shall develop rules and operating procedures for 
        the lender-of-last-resort program designed to ensure 
        that--
                  (A) * * *
                  (B) consistent with standards established by 
                the Secretary, students applying for loans 
                under this subsection shall not be subject to 
                additional eligibility requirements or requests 
                for additional information beyond what is 
                required under this title in order to receive a 
                loan under this part from an eligible lender, 
                nor, in the case of students and parents 
                applying for loans under this subsection 
                because of an inability to otherwise obtain 
                loans under this part (except for consolidation 
                loans under section 428C), be required to 
                receive more than two rejections from eligible 
                lenders in order to obtain a loan under this 
                subsection;

           *       *       *       *       *       *       *

          (3) Advances to guaranty agencies for lender-of-last-
        resort services.--(A) * * *

           *       *       *       *       *       *       *

          (C) The Secretary shall exercise the authority 
        described in subparagraph (A) only if the Secretary 
        determines that eligible borrowers are seeking and are 
        unable to obtain loans under this part or designates an 
        institution of higher education for participation in 
        the program under this subsection under paragraph (4),, 
        and that the guaranty agency designated for that State 
        has the capability to provide lender-of-last-resort 
        loans in a timely manner, in accordance with the 
        guaranty agency's obligations under paragraph (1), but 
        cannot do so without advances provided by the Secretary 
        under this paragraph. If the Secretary makes the 
        determinations described in the preceding sentence and 
        determines that it would be cost-effective to do so, 
        the Secretary may provide advances under this paragraph 
        to such guaranty agency. If the Secretary determines 
        that such guaranty agency does not have such 
        capability, or will not provide such loans in a timely 
        fashion, the Secretary may provide such advances to 
        enable another guaranty agency, that the Secretary 
        determines to have such capability, to make lender-of-
        last-resort loans to eligible borrowers in that State 
        who are experiencing loan access problems or to 
        eligible borrowers who attend an institution in the 
        State that is designated under paragraph (4).
          (4) Institution-wide student qualification.--Upon the 
        request of an institution of higher education and 
        pursuant to standards developed by the Secretary, the 
        guaranty agency designated for a State shall designate 
        such institution for participation in the lender-of-
        last-resort program under this paragraph. If the 
        guaranty agency designates an institution under this 
        paragraph, such agency shall make loans, in the same 
        manner as such loans are made under paragraph (1), to 
        students and parent borrowers of the designated 
        institution, regardless of whether the students or 
        parent borrowers are otherwise unable to obtain loans 
        under this part (other than a consolidation loan under 
        section 428C).

           *       *       *       *       *       *       *


SEC. 428B. FEDERAL PLUS LOANS.

  (a) Authority To Borrow.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Special rule.--Whenever necessary to carry out 
        the provisions of this section, the terms ``student'' 
        and ``borrower'' as used in this part shall include a 
        parent borrower under this section.]
          (3) Special rules.--
                  (A) Parent borrowers.--Whenever necessary to 
                carry out the provisions of this section, the 
                terms ``student'' and ``borrower'' as used in 
                this part shall include a parent borrower under 
                this section.
                  (B) Extenuating circumstances.--For loans 
                made on or after July 1, 2008, and before July 
                1, 2009, a lender may determine that a borrower 
                meets the extenuating circumstances requirement 
                described in regulations promulgated by the 
                Secretary to carry out this section or section 
                455 if the borrower is 180 or fewer days 
                delinquent on their home mortgage payments.

           *       *       *       *       *       *       *

  (d) Payment of Principal and Interest.--
          [(1) Commencement of repayment.--Repayment of 
        principal on loans made under this section shall 
        commence not later than 60 days after the date such 
        loan is disbursed by the lender, subject to deferral 
        during any period during which the graduate or 
        professional student or the parent meets the conditions 
        required for a deferral under section 427(a)(2)(C) or 
        428(b)(1)(M).
          [(2) Capitalization of interest.--Interest on loans 
        made under this section for which payments of principal 
        are deferred pursuant to paragraph (1) of this 
        subsection shall, if agreed upon by the borrower and 
        the lender (A) be paid monthly or quarterly, or (B) be 
        added to the principal amount of the loan not more 
        frequently than quarterly by the lender. Such 
        capitalization of interest shall not be deemed to 
        exceed the annual insurable limit on account of the 
        borrower.]
          (1) Commencement of repayment.--Repayment of 
        principal on loans made under this section shall--
                  (A) commence not later than--
                          (i) 60 days after the date such loan 
                        is disbursed by the lender, except as 
                        provided in clause (ii); and
                          (ii) if agreed upon by a parent 
                        borrower, the day after 6 months after 
                        the date the student for whom the loan 
                        is borrowed ceases to carry at least 
                        one-half the normal full-time academic 
                        workload (as determined by the 
                        institution); and
                  (B) be subject to deferral during any period 
                during which the graduate or professional 
                student or the parent meets the conditions 
                required for a deferral under section 
                427(a)(2)(C) or 428(b)(1)(M).
          (2) Capitalization of interest.--
                  (A) In general.--Interest on loans made under 
                this section--
                          (i) which accrues prior to the 
                        beginning of repayment under paragraph 
                        (1)(A)(i), shall be added to the 
                        principal amount of the loan; and
                          (ii) which accrues prior to the 
                        beginning of repayment under paragraph 
                        (1)(A)(ii) or during a period in which 
                        payments of principal are deferred 
                        pursuant to paragraph (1)(B) shall, if 
                        agreed upon by the borrower and the 
                        lender--
                                  (I) be paid monthly or 
                                quarterly; or
                                  (II) be added to the 
                                principal amount of the loan 
                                not more frequently than 
                                quarterly by the lender.
                  (B) Insurable limits.--Capitalization of 
                interest under this paragraph shall not be 
                deemed to exceed the annual insurable limit on 
                account of the borrower.

           *       *       *       *       *       *       *


SEC. 428H. UNSUBSIDIZED STAFFORD LOANS FOR MIDDLE-INCOME BORROWERS.

  (a) * * *

           *       *       *       *       *       *       *

          [(d) Loan Limits.--
                  [(1) In general.--Except as provided in 
                paragraphs (2) and (3), the annual and 
                aggregate limits for loans under this section 
                shall be the same as those established under 
                section 428(b)(1), less any amount received by 
                such student pursuant to the subsidized loan 
                program established under section 428.
                  [(2) Annual limits for independent, graduate, 
                and professional students.--The maximum annual 
                amount of loans under this section an 
                independent student (or a student whose parents 
                are unable to borrow under section 428B or the 
                Federal Direct PLUS Loan Program) may borrow in 
                any academic year (as defined in section 
                481(a)(2)) or its equivalent shall be the 
                amount determined under paragraph (1), plus--
                          [(A) in the case of such a student 
                        attending an eligible institution who 
                        has not completed such student's first 
                        2 years of undergraduate study--
                                  [(i) $4,000, if such student 
                                is enrolled in a program whose 
                                length is at least one academic 
                                year in length; and
                                  [(ii) if such student is 
                                enrolled in a program of 
                                undergraduate education which 
                                is less than one academic year, 
                                the maximum annual loan amount 
                                that such student may receive 
                                may not exceed the amount that 
                                bears the same ratio to the 
                                amount specified in clause (i) 
                                as the length of such program 
                                measured in semester, 
                                trimester, quarter, or clock 
                                hours bears to one academic 
                                year;
                          [(B) in the case of a student at an 
                        eligible institution who has 
                        successfully completed such first and 
                        second years but has not successfully 
                        completed the remainder of a program of 
                        undergraduate education--
                                  [(i) $5,000; or
                                  [(ii) if such student is 
                                enrolled in a program of 
                                undergraduate education, the 
                                remainder of which is less than 
                                one academic year, the maximum 
                                annual loan amount that such 
                                student may receive may not 
                                exceed the amount that bears 
                                the same ratio to the amount 
                                specified in subclause (I) as 
                                such remainder measured in 
                                semester, trimester, quarter, 
                                or clock hours bears to one 
                                academic year;
                          [(C) in the case of such a student 
                        who is a graduate or professional 
                        student attending an eligible 
                        institution, $10,000 ; and
                          [(D) in the case of a student 
                        enrolled in coursework specified in 
                        sections 484(b)(3)(B) and 
                        484(b)(4)(B)--
                                  [(i) $4,000 for coursework 
                                necessary for enrollment in an 
                                undergraduate degree or 
                                certificate program, and, in 
                                the case of a student who has 
                                obtained a baccalaureate 
                                degree, $5,000 for coursework 
                                necessary for enrollment in a 
                                graduate or professional 
                                program; and
                                  [(ii) in the case of a 
                                student who has obtained a 
                                baccalaureate degree, $5,000 
                                for coursework necessary for a 
                                professional credential or 
                                certification from a State 
                                required for employment as a 
                                teacher in an elementary or 
                                secondary school;
except in cases where the Secretary determines, that a higher 
amount is warranted in order to carry out the purpose of this 
part with respect to students engaged in specialized training 
requiring exceptionally high costs of education, but the annual 
insurable limit per student shall not be deemed to be exceeded 
by a line of credit under which actual payments by the lender 
to the borrower will not be made in any years in excess of the 
annual limit.
                  [(3) Aggregate limits for independent, 
                graduate, and professional students.--The 
                maximum aggregate amount of loans under this 
                section a student described in paragraph (2) 
                may borrow shall be the amount described in 
                paragraph (1), adjusted to reflect the 
                increased annual limits described in paragraph 
                (2), as prescribed by the Secretary by 
                regulation. Interest capitalized shall not be 
                deemed to exceed such maximum aggregate 
                amount.]
  (d) Loan Limits.--
          (1) In general.--Except as provided in paragraphs 
        (2), (3), and (4), the annual and aggregate limits for 
        loans under this section shall be the same as those 
        established under section 428(b)(1), less any amount 
        received by such student pursuant to the subsidized 
        loan program established under section 428.
          (2) Limits for graduate and professional students.--
                  (A) Annual limits.--The maximum annual amount 
                of loans under this section a graduate or 
                professional student may borrow in any academic 
                year (as defined in section 481(a)(2)) or its 
                equivalent shall be the amount determined under 
                paragraph (1), plus--
                          (i) in the case of such a student who 
                        is a graduate or professional student 
                        attending an eligible institution, 
                        $14,000; and
                          (ii) in the case of a graduate 
                        student enrolled in coursework 
                        specified in sections 484(b)(3)(B) and 
                        484(b)(4)(B), $7,000;
                except in cases where the Secretary determines, 
                that a higher amount is warranted in order to 
                carry out the purpose of this part with respect 
                to students engaged in specialized training 
                requiring exceptionally high costs of 
                education, but the annual insurable limit per 
                student shall not be deemed to be exceeded by a 
                line of credit under which actual payments by 
                the lender to the borrower will not be made in 
                any years in excess of the annual limit.
                  (B) Aggregate limit.--The maximum aggregate 
                amount of loans under this section a student 
                described in subparagraph (A) may borrow shall 
                be the amount described in paragraph (1), 
                adjusted to reflect the increased annual limits 
                described in subparagraph (A), as prescribed by 
                the Secretary by regulation.
          (3) Limits for undergraduate dependent students.--
                  (A) Annual limits.--The maximum annual amount 
                of loans under this section an undergraduate 
                dependent student (except an undergraduate 
                dependent student whose parents are unable to 
                borrow under section 428B or the Federal Direct 
                PLUS Loan Program) may borrow in any academic 
                year (as defined in section 481(a)(2)) or its 
                equivalent shall be the sum of the amount 
                determined under paragraph (1), plus $2,000.
                  (B) Aggregate limits.--The maximum aggregate 
                amount of loans under this section a student 
                described in subparagraph (A) may borrow shall 
                be $31,000.
          (4) Limits for undergraduate independent students.--
                  (A) Annual limits.--The maximum annual amount 
                of loans under this section an undergraduate 
                independent student, or an undergraduate 
                dependent student whose parents are unable to 
                borrow under section 428B or the Federal Direct 
                PLUS Loan Program, may borrow in any academic 
                year (as defined in section 481(a)(2)) or its 
                equivalent shall be the sum of the amount 
                determined under paragraph (1), plus--
                          (i) in the case of such a student 
                        attending an eligible institution who 
                        has not completed such student's first 
                        2 years of undergraduate study--
                                  (I) $6,000, if such student 
                                is enrolled in a program whose 
                                length is at least one academic 
                                year in length; or
                                  (II) if such student is 
                                enrolled in a program of 
                                undergraduate education which 
                                is less than one academic year, 
                                the maximum annual loan amount 
                                that such student may receive 
                                may not exceed the amount that 
                                bears the same ratio to the 
                                amount specified in clause (i) 
                                as the length of such program 
                                measured in semester, 
                                trimester, quarter, or clock 
                                hours bears to one academic 
                                year;
                          (ii) in the case of such a student at 
                        an eligible institution who has 
                        successfully completed such first and 
                        second years but has not successfully 
                        completed the remainder of a program of 
                        undergraduate education--
                                  (I) $7,000; or
                                  (II) if such student is 
                                enrolled in a program of 
                                undergraduate education, the 
                                remainder of which is less than 
                                one academic year, the maximum 
                                annual loan amount that such 
                                student may receive may not 
                                exceed the amount that bears 
                                the same ratio to the amount 
                                specified in subclause (I) as 
                                such remainder measured in 
                                semester, trimester, quarter, 
                                or clock hours bears to one 
                                academic year; and
                          (iii) in the case of such a student 
                        enrolled in coursework specified in 
                        sections 484(b)(3)(B) and 484(b)(4)(B), 
                        $6,000 for coursework necessary for 
                        enrollment in an undergraduate degree 
                        or certificate program.
                  (B) Aggregate limits.--The maximum aggregate 
                amount of loans under this section a student 
                described in subparagraph (A) may borrow shall 
                be $57,500.
          (5) Capitalized interest.--Interest capitalized shall 
        not be deemed to exceed a maximum aggregate amount 
        determined under subparagraph (B) of paragraph (2), 
        (3), or (4).

           *       *       *       *       *       *       *


          PART D--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

SEC. 451. PROGRAM AUTHORITY.

  (a) In General.--There are hereby made available, in 
accordance with the provisions of this part, such sums as may 
be necessary (1) to make loans to all eligible students (and 
the eligible parents of such students) in attendance at 
participating institutions of higher education selected by the 
Secretary, to enable such students to pursue their courses of 
study at such institutions during the period beginning July 1, 
1994; and (2) for purchasing loans under section 459A. [Such 
loans shall] Loans made under this part shall be made by 
participating institutions, or consortia thereof, that have 
agreements with the Secretary to originate loans, or by 
alternative originators designated by the Secretary to make 
loans for students in attendance at participating institutions 
(and their parents).

           *       *       *       *       *       *       *


SEC. 456. CONTRACTS.

  (a) * * *
  (b) Contracts for Origination, Servicing, and Data Systems.--
The Secretary may enter into contracts for--
          (1) * * *
          (2) the servicing and collection of loans made or 
        purchased under this part;
          (3) the establishment and operation of 1 or more data 
        systems for the maintenance of records on all loans 
        made or purchased under this part; and

           *       *       *       *       *       *       *


SEC. 459A. TEMPORARY AUTHORITY TO PURCHASE STUDENT LOANS.

  (a) Authority To Purchase.--Upon a determination by the 
Secretary that there is an inadequate availability of loan 
capital to meet the demand for loans under sections 428, 428B, 
and 428H, whether as a result of inadequate liquidity for such 
loans or for other reasons, the Secretary, in consultation with 
the Secretary of the Treasury, is authorized to purchase from 
any eligible lender, as defined by section 435(d)(1), loans 
originated under sections 428, 428B, or 428H on or after 
October 1, 2003, on such terms as the Secretary determines 
(after consultation with the Secretary of the Treasury) are in 
the best interest of the United States, except that any loan 
purchase under this section shall not result in any cost to the 
Federal Government. The Secretary shall promptly publish any 
determination under this subsection in the Federal Register.
  (b) Proceeds.--The Secretary shall require, as a condition of 
any purchase under subsection (a), that the funds paid by the 
Secretary to any eligible lender under this section shall be 
used in a manner consistent with ensuring continued 
participation of such lender in the Federal student loan 
programs authorized under part B of this title.
  (c) Expiration of Authority.--The Secretary's authority to 
purchase loans under this section shall expire on July 1, 2009.

           *       *       *       *       *       *       *


                     XII. Committee Correspondence

    None.

                            REPUBLICAN VIEWS

    Republican Members of the Committee on Education and Labor 
are committed to ensuring that every eligible American family 
is able to access the Federal funds available to help them pay 
for the cost of their, or their child's, postsecondary 
education. Unfortunately, the turmoil facing the home mortgage 
industry in the U.S. credit markets has bled into the student 
loan credit markets. It is our goal to take action that will 
prevent these market weaknesses from producing a crisis in 
student loan access rather than simply reacting once a crisis 
has occurred. For that reason, Committee Republicans were 
pleased to see the announcement of the hearing that took place 
on March 14th and were also pleased to be invited to work with 
Committee Democrats on H.R. 5715, Ensuring Continued Access to 
Student Loans Act of 2008.
    Unanimous Committee passage by voice vote of H.R. 5715 
reflects the bipartisan nature of the process used to craft the 
legislation. Likewise, the role of the Committee's Senior 
Republican, Rep. Howard P. ``Buck'' McKeon (R-CA), as an 
original cosponsor signifies a shared commitment to act 
expeditiously in the face of growing market turmoil. 
Regrettably, however, the Committee Report drafted by the 
majority does not reflect that same spirit of cooperation and 
good-faith negotiation. As such, the Committee Report does not 
reveal what Republicans believe to be an accurate and complete 
account of Congressional intent with respect to the bill's 
goals and purposes. These Republican views serve to illuminate 
the discussion of this legislation to better and more 
appropriately represent the tone and tenor of Congressional 
discourse on the critical issue of student loan access.

                       STUDENT LOAN CREDIT CRISIS

    In recent months, Committee Republicans have become 
increasingly alarmed as one lender after another announced they 
were leaving the privately-run Federal student loan program, 
scaling back on the benefits offered on loans to students 
(thereby making loans more expensive for students), ceasing to 
offer private (non-Federal) student loans or being more 
selective in their lending. Committee Republicans, along with 
Members from both sides of the aisle of the Committee, started 
to raise concerns early with the goal of trying to engage the 
rest of the Congress and the Administration in a dialogue.
    Reps. McKeon and Keller, the senior Republican members of 
the Full Committee and Higher Education, Lifelong Learning, and 
Competitiveness Subcommittee, respectively, sent a letter to 
Secretary Spellings urging her to monitor the situation and 
consult with her colleagues in other Departments, including the 
Treasury Department, and utilize their existing authorities to 
help prevent a situation where students would be left without 
options. In addition, Rep. McKeon signed a letter spearheaded 
by the Chairman of the Subcommittee on Capital Markets, 
Insurance, and Government-Sponsored Enterprises, Rep. Paul 
Kanjorski (D-PA), to Federal Reserve Chairman Ben Bernanke 
urging intervention by the Federal Reserve. This letter was 
signed by 32 Members of Congress from both sides of the aisle.
    Despite widespread media accounts of this grave and growing 
threat to our nation's largest source of college financial aid, 
it was not until March 14th that the majority scheduled its 
first and, to date, only official Committee hearing on the 
matter. It was at that same hearing that the Administration 
presented its first clear plan to begin to address the 
challenges in the financial markets and their spillover into 
the student loan programs. Although Committee Republicans 
welcome that decision by both the majority and the 
Administration to engage in efforts to stave off loan access 
problems for students and families, we continue to believe that 
if warnings had been heeded earlier, some of the current 
uncertainty could have been prevented. As it stands today, this 
legislation is being considered less than two months before the 
height of lending season, when millions of students and 
families are attempting to secure billions in low-cost 
financing for the upcoming academic year.

                          DIRECT LOAN PROGRAM

    Included in the majority's Committee Report is a 
recommendation that all institutions prepare to undertake 
administrative steps to enter the Direct Loan program in the 
coming academic year regardless of their intent to actually 
leave the Federal Family Education Loan (FFEL) program. This 
language was crafted without any consultation with Committee 
Republicans and reflects neither the legislative language nor 
its intent as understood by Committee Republicans who were 
intimately involved in the bill's drafting.
    Committee Republicans believe this operational advice to 
institutions, in addition to being wholly outside the scope of 
the legislation, is short-sighted and unwise. Such a 
recommendation encourages schools to unnecessarily expend time 
and resources on a program that approximately four out of five 
schools have already rejected. Moreover, if followed, this 
course of action would result in a tremendous administrative 
burden on the U.S. Department of Education, potentially 
diverting resources from students and schools that truly need 
help.
    The Direct Loan program reached its peak in 1998 when it 
encompassed 34 percent of the market. Since that time, schools 
have actually left the program to the extent that the program 
now encompasses 20 percent of total loan volume. We agree with 
Committee Democrats that it is up to the institution to select 
the student loan program that it believes will best meet the 
needs of its student population. Eighty percent of institutions 
have chosen the FFEL program. Given that overwhelming support, 
the Federal government should do what it can to ensure that the 
upcoming lending season unfolds without a hitch to the 
students. This Committee should not use this opportunity to 
advocate for one lending program over another, but should 
ensure that students are able to access loans in a seamless 
fashion with as little disruption as possible.
    Congress has not a single piece of evidence to indicate 
that the Direct Loan program is capable of successfully taking 
on a significant increase in loan volume. The only indications 
that have been given are the verbal and written statements of 
the Secretary of Education. The majority finds these assurances 
compelling enough to encourage thousands of institutions to 
undertake a major operational change in how their financial aid 
programs are administered; yet just last year, Democrats called 
the Secretary's stewardship of the loan programs into question.
    Despite the lack of evidence that the Direct Loan program 
is equipped to serve a greater number of students and schools, 
we have concrete evidence that the government-run Direct Loan 
program has, in the past, been unable to, handle spikes in 
volume. In 1998, the Department of Education abandoned more 
than 84,000 students and left these students without the 
ability to consolidate their student loans. This occurred 
because the Direct Loan consolidation program was shut down 
after it could not handle a sharp increase in loan volume. 
Congress had to step in, on the brink of a reauthorization of 
the Higher Education Act, to ensure that the FFEL program was 
statutorily permitted to assist the Direct Loan program's 
students. History may repeat itself again a decade later.
    This history of program instability and a preference among 
institutions for the FFEL program is what we do know about the 
Direct Loan program. There are also many things we do not know 
about the program and how it is being run. For example, we do 
not know how many employees are currently in place to run the 
Direct Loan program or train new schools on the software. We 
also do not know whether the Department plans to hire 
additional staff or seek additional contracts to handle any 
potential shift in volume. We do not know, specifically, how 
quickly the Direct Loan program can absorb additional volume 
and exactly how much volume can be assumed in a short period of 
time. We do not know whether the Department has the 
infrastructure and administrative capacity to ensure that their 
systems will not crash. Nor do we know if students will have 
access to knowledgeable customer service representatives in a 
timely fashion to answer questions, or whether they will be 
forced to contend with long hold times because of a shortage in 
trained personnel.
    We believe that Committee Democrats provided questionable 
advice prior to gathering all the facts. In talking to 
institutions that have been in and out of the Direct Loan 
program, we have heard that it could take up to nine months for 
a big institution, with plenty of staff, to be ready to issue 
its first loan. In addition, we have heard that the cost to 
institutions of switching programs could be as much as $400,000 
for staffing costs, system changes, updates, etc. Switching 
programs is not like flipping a light switch. Congress should 
not be recommending that schools spend significant time and 
money to switch into a program that may not be ready to handle 
the volume. Gaining eligibility for the Direct Loan program and 
being ready to operate the program on an institution-wide basis 
are two very different issues.

                         LENDER OF LAST RESORT

    H.R. 5715 provides for some important reforms that will 
make the lender of last resort program easier to administer on 
a broader scale if needed. However, Committee Republicans 
believe that we should consider whether a threshold should be 
put in place so that an institution does not turn to this 
program as a lender-of-first-resort.

                       NATIONAL SECONDARY MARKET

    Committee Republicans support efforts to provide the 
Secretary of Education with the temporary authority to purchase 
student loans should a FFEL lender decide to sell its loans to 
the Secretary, as long as the funds received by the lender are 
reinvested into the FFEL program. This authority will expire 
after one year and we do not envision extending this authority. 
We are optimistic that after one year, actions by the Treasury 
in conjunction with the credit markets will render this 
authority unnecessary. We strongly oppose any activities that 
would expand the Direct Loan program or turn lenders simply 
into originating agents for the Direct Loan program.
    In exercising this authority, Committee Republicans support 
all efforts to ensure that any loan sale not be disruptive or 
confusing to students. In addition, Committee Republicans 
support providing the Secretary with the greatest amount of 
flexibility in negotiating purchase agreements so this 
provision has the intended effect of increasing liquidity in 
the student loan market.

                               CONCLUSION

    The troubles facing our financial markets and our economy 
as a whole are daunting. But we would do a real disservice to 
students and families if we dismissed the challenges in the 
student loan program as merely a symptom of a larger problem 
that is outside our control. The fact is we can take steps to 
prevent a collapse in the student loan market. We can do so 
quickly, and without a cost to taxpayers, by focusing on our 
commitment to market stability.
    Committee Republicans strongly believe that H.R. 5715 is 
not the only answer to ensuring uninterrupted access to student 
loans for the millions of students and families now preparing 
for the upcoming academic year. It is, at best, one small piece 
of the puzzle. The situation that has been created is a perfect 
storm. The so-called College Cost Reduction & Access Act 
(CCRAA) slashed the return on these loans to the point that 
many loans made today result in a net loss to the lender due to 
the combination of reduced Federal support and a higher cost of 
funds in the current marketplace. During debate on CCRAA, 
Committee Democrats argued that even if a few smaller lenders 
dropped out of the program, the big lenders would remain and be 
able to capitalize on their economies of scale, while Committee 
Republicans voiced concern with respect to excessive cuts 
driving lenders from the loan programs. Our concerns should 
have been taken more seriously as we now sit and watch several 
deposit banks drop out of the program because the subsidy 
levels are too low. While a few banks have offered tentative 
support to help fill in the gaps, that level of support is not 
nearly as overwhelming as it could have been had last year's 
subsidy cuts not taken place. Now is the time to revisit those 
cuts, along with the other available options, in order to 
ensure a strong and viable FFEL program. Committee Republicans 
look forward to continuing to work with Committee Democrats as 
H.R. 5715 moves through the legislative process.

                                   Howard P. ``Buck'' McKeon.
                                   Ric Keller.
                                   Joe Wilson.
                                   John Kline.
                                   Cathy McMorris Rodgers.
                                   Kenny Marchant.
                                   Charles W. Boustany, Jr.
                                   Rob Bishop.
                                   David Davis.
                                   Timothy Walberg.