A r c h i v e d  I n f o r m a t i o n

Key Policy Letters Signed by the Education Secretary or Deputy Secretary

November 8, 1999

Honorable Trent Lott
United States Senate
Washington, DC 20510

Dear Mr. Leader:

As a conferee on the Work Incentives Improvement Act of 1999, you are aware of an extraneous provision in the bill dealing with student loans. This is an unfortunate addition to the bill and, as the federal official responsible for administering the student loan programs, I strongly oppose it.

The provision, which would pay student loan holders in commercial paper rates rather than Treasury bill rates, was added in the House under suspension procedures. It has not had the benefit of hearings or debate in either the House or the Senate. It was closely examined and rejected by the study group on lender yields due to opposition from study group members independent of the student loan industry and the Administration. This study group -- established under section 802 of the Higher Education Amendments of 1998 and led by the Department of Education and the General Accounting Office -- was broadly representative of higher education interests, including students and higher education institutions as well as lenders.

There are several substantive problems with the commercial paper rider:

  • All the benefits go to loan holders, none to students and families. With the cost of higher education straining many families' budgets, our first priority must be students.
  • The economic burden on American taxpayers could be as high as $1.7 billion over the life of loans originated under this extraneous provision, if current market conditions continue.
  • Congress thoroughly debated the appropriate level of federal subsidies on student loans before enacting the current formula only one year ago. The Administration believes that a precipitous change in how we calculate lender subsidies is unnecessary.
  • Because the largest loan holders stand to gain disproportionately from this provision, other lenders could be placed at a competitive disadvantage and might be forced to leave the program.

Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.


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I urge you as a conferee to reject the commercial paper amendment that has been placed on the House version of the bill. If there are benefits associated with moving to a commercial paper rate, they should be examined in a deliberative process and shared with students, families, and American taxpayers.

Yours sincerely,

Dick Riley

Richard W. Riley


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This page last updated November 10, 1999 (pjk/tag)