Reauthorization of the Higher Education Act
|April 3, 1998|
Dear Member of Congress:
As you know, the student loan interest rate is scheduled by law to be reduced on July 1, 1998, reducing student costs of borrowing for higher education by hundreds, even thousands, of dollars.
Both the Clinton Administration and the House and Senate Committees have developed proposals to preserve savings for students while providing higher rates of return to lenders. However, some lenders are still threatening to discontinue making student loans unless they receive a higher interest rate than specified by either proposal.
As you return home for recess, it is not yet clear how the student loan interest rate issue will be resolved. However, I want to assure you that you can tell students, parents, and other members of the higher education community that -- regardless of what interest rate formula is adopted -- the Department of Education will ensure that all eligible students and their families have access to student loans.
Three weeks ago, the Department asked the Student Loan Marketing Association (Sallie Mae) and all 36 guaranty agencies to assess their capacity to make loans to students in the unlikely event that some banks discontinue their student loan business. Based on their responses, Sallie Mae and the guaranty agencies could together provide many more loans than would be necessary to ensure uninterrupted access to FFEL loans under any foreseeable scenario.
Sallie Mae, the largest student loan holder, was created by Congress. Under the Higher Education Act (HEA), it is designated as a "lender-of-last-resort" and is required to serve any eligible students who cannot secure loans from other sources.
Guaranty agencies are state and private, nonprofit organizations subsidized by the Department to administer the federal guarantee should the borrower default on a student loan. Guaranty agencies are also required to serve as lenders-of-last-resort under the HEA. The Department has authority to advance federal capital to guaranty agencies to be used for funding these loans.
Congress recognized several years ago the importance of authorizing the Department to advance federal capital to the guaranty agencies as a means of reassuring students and ensuring FFEL loan access. It was wise legislation then and it remains so today.
Yours sincerely, |
Richard W. Riley