House Panel Addresses Student
Loan Consolidation
July 25, 2003 - The House Education and the Workforce
Subcommittee on 21st Century Competitiveness July 22 held
a hearing
on the federal student loan consolidation program. The hearing
specifically addressed proposals by Rep. Ralph Regula (R-Ohio)
to eliminate the "single lender" rule (H.R.
942), and by Rep. Rosa DeLauro (D-Conn.) to allow borrowers
to reconsolidate an existing consolidation loan (H.R.
2505). The subcommittee is currently developing proposals
for the reauthorization of the Higher Education Act.
Both Reps. Regula and DeLauro argued the cases of their respective
bills on the basis of fairness. Rep. Regula's bill would repeal
the "single lender" rule, thereby allowing borrowers
to approach any lender for a consolidation loan. Under current
law, borrowers whose loans are held by one holder must go
first to that holder for a consolidation loan. Rep. DeLauro's
legislation would allow borrowers who consolidated loans at
fixed rates several years ago to reconsolidate and take advantage
of the historically low rates. Both Rep. Regula and Rep. DeLauro
felt that the cost to the taxpayer of their bills would be
negligible and that any costs would be more than offset by
the increased productivity of the borrowers.
Support for the two pieces of legislation was mixed among
the witnesses on the hearing's second panel. Dallas Martin,
president of the National Association of Student Financial
Aid Administrators (NASFAA), testified that the loan consolidation
program should go back to its original mandate of providing
borrowers simplification through a single monthly payment
and reducing defaults by reducing those payments, rather than
as a refinancing instrument. Dr. Martin testified that NASFAA
opposes the repeal of the "single lender" rule because
it could potentially lead to destabilization in the student
loan market and result in fewer lenders and therefore less
competition. Dr. Martin also raised the issue of whether scarce
resources should be spent to provide benefits to former students
or to current and future students, an issue also noted by
full Education and the Workforce Chairman John Boehner (R-Ohio).
Testifying on behalf of Sallie Mae, Executive Vice President
June McCormack opposed both the repeal of the "single holder"
rule and reconsolidation bill on the basis of the enormous
costs that would result. Sallie Mae estimates that if each
borrower were able to reconsolidate just once, it would cost
the government over $15 billion as interest rates returned
to historic averages. Ms. McCormack testified that the "single
holder" rule prevents a lender's portfolio from being "cherry-picked"
and called repeal of the rule a "solution in search of a problem."
Barry Morrow, CEO of Collegiate Funding Services (CFS), testified
in support of the repeal of the "single holder" rule so that
all borrowers would have the option of comparison shopping.
Mr. Morrow also stated that CFS would support legislation
permitting reconsolidation "even if our revenues took a hit."
The final witness on the second panel, Paul Wozniak, managing
director and group manager of UBS Financial Services Inc.'s
Education Loan Group, testified on the implications of the
proposed changes on the financial services industry. Stating
that investors like the security of knowing how long a loan
will be held at a certain rate, Mr. Wozniak stated that the
predictability of the status quo was the best option for maintaining
stability in the industry.
Information:
Jonathan Fishburn, Director, Research, Education and Veterans' Legislative Affairs
AAMC Office of Governmental Relations
jfishburn@aamc.org
(202) 828-0525
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