Reauthorization of the Higher Education Act
|May 21, 1998|
Dear Member of Congress:
As you know, current law mandates a new interest rate formula for government-guaranteed and direct student loans after July 1, 1998, which will substantially reduce students' interest costs. Virtually everyone agrees that this law should be changed, and I am encouraged by the recent bipartisan and productive discussions concerning how best to protect the interests of students, lenders, and taxpayers.
Nevertheless, I am also concerned that some lenders have indicated that, unless the law is changed soon, the mandated changes may lead their organizations to leave the guaranteed loan program. The Administration and Congress are working to resolve the student loan interest rate issue soon enough to ensure that there is no reason for lenders to withdraw their support for this valuable program. The Administration's position on this issue is described in detail in the letter that Secretary Rubin and I recently sent to Congress.
As Secretary of Education, however, I have a statutory responsibility to ensure uninterrupted access to student loans. It is only prudent to prepare for the unlikely but possible circumstance that some lenders might withdraw from the program. To avert any possible problem in access to student loans, Congress has given me the authority to require the Student Loan Marketing Association (Sallie Mae) and the 36 guaranty agencies to serve as "lenders of last resort."
I have attached a summary of the Department's plan for implementing a lender-of-last-resort program. In the unlikely event that such a program is necessary, the information we have received from Sallie Mae and the guaranty agencies shows that, together, they could meet the entire nationwide demand for student loans in a cost-effective manner. Although I believe that our mutual efforts to resolve this issue will prevent any loan access problem from occurring, we must begin implementing this plan now in order to ensure that last-resort loans are available to students on July 1, if needed. Therefore, I have asked my staff to begin establishing a lender-of-last-resort program immediately, so that if a loan access problem does develop, we can respond to it with the least possible delay for students, families, and schools.
Finally, although I remain optimistic that this law will be amended before July 1, I am legally obligated to determine the new student loan interest rate on June 1 and publish a notice of it soon thereafter. Unless the law is changed, I will have no choice but to base the calculation of the new interest rate upon the formula in current law. However, the student loan interest rate may still be changed by an act of Congress at any time before it becomes effective on July 1. Our notice in the Federal Register will reflect the possibility of such Congressional action.
I am certain you can appreciate the need to take these steps. Again, I look forward to working with you to resolve this important issue as quickly as possible.
Yours sincerely, |
Richard W. Riley