AAMC Letter to Entire Congress
on 2003 Student Loan Interest Rate Calculation Issue
August 28, 2001
The Honorable Thomas Daschle
United States Senate
509 Hart Senate Office Building
Washington, DC 20510-4103
Dear Senator Daschle:
On behalf of the Association of American Medical Colleges
(AAMC), I urge you to support efforts to extend the short
term interest rate formula currently in effect for Stafford
Loans in the Federal Family Education Loan Program (FFELP).
The AAMC represents the nation's 125 accredited allopathic
medical schools, some 400 major teaching hospitals and health
systems, 92 academic and scientific societies representing
87,000 faculty members, and the nation's medical students
and residents.
In the 1993 Reauthorization of the Higher Education Act (HEA),
Congress included a provision that would alter the way interest
rates are calculated for federal student loans by indexing
the rates to the long term 10-year Note rate rather than the
short term 91-day Treasury Bill rate. This provision would
have satisfied a government requirement that the terms of
borrowing match the average length of the loan and at that
time made sense under the assumption that the Federal Direct
Student Loan Program (Direct Loan Program) would provide 100
percent of the loans for students by the time the provision
was to take effect in 1998. However, the Direct Loan Program
currently accounts for only approximately 30 percent of the
volume of federal student loans.
During negotiations over the 1998 reauthorization of the
HEA, Congress recognized this problem and extended the old
formula for five years (until July 1, 2003). Should the rate
calculation change (from the short term 91-Day Treasury Bill
rate to the long term 10-year Note rate) go into effect at
that time, lenders that participate in the FFELP may be forced
to leave the program because their return under the new rate
formula would be below the cost of funds for the loans. This
in turn would severely hinder the ability of students to access
affordable education loans.
The FY 2002 budget resolution (H. Con. Res. 83, Sec. 215)
sets aside funds to extend the current interest rate formula.
However, without authorizing and appropriating legislation,
the funds will expire at the end of the term of the resolution.
A solution is required this year to help ensure the long-term
stability of the FFELP which will allow lenders to issue bonds
and employ other financing options to make future loans available.
In addition, our analysis shows that such an extension would
result in significant savings to borrowers over the long term,
something that should be paramount in this decision.
We understand that Congress has a number of important issues
to address in the remainder of this session. Extending the
current formula for calculating student loan interest rates
is a bipartisan and non-controversial issue supported by both
the lending and higher education communities. Please support
efforts to extend this important provision. If you or your
staff have any questions, please contact Jonathan Fishburn
on my staff at <jfishburn@aamc.org>
or 202-828-0525.
Sincerely,
Jordan J. Cohen, M.D.
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