Harrison M. Wadsworth III Special Counsel's Office Consumer Bankers Association Supporting Document - Student Loan Community Responses
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Student Loan Community Responses
to the Department of Education Questions
Published in the Federal Register on December 20, 2002
a. How can we improve access and promote additional educational opportunity for all students, especially students with disabilities, within the framework of the HEA? How can the Federal Government encourage greater persistence and completion of students enrolled in postsecondary education?
Lack of awareness of postsecondary opportunities and the multitude of resources available to help pay for education are significant barriers to access, particularly for low-income families. The FFELP community devotes substantial private resources to the development and delivery of effective and innovative college awareness and access programs. Many of our members offer services and programs such as college planning, early awareness, and financial literacy to schools, families and students at no cost to taxpayers or to recipients. Several of our members are also partners in federal early outreach and college support programs, such as GEAR UP, TRIO, and LEAP.
- We encourage increased support for these federal efforts, and will continue to devote private resources to advance the same goals.
- We support the overarching principle of federal financial aid, to direct the greatest amount of support to those who need it the most, when they need it the most. This should include increased outreach to students who are low-income, minority, disabled, or whose parents did not attend postsecondary education.
- We encourage the Department to involve persons with disabilities in the design of forms and in the development of outreach activities. Institutions should be encouraged to prepare faculty to work with student with disabilities.
b. How can existing HEA programs be changed and made to work more efficiently and effectively? In what ways do they need to be adapted or modified to respond to changes in postsecondary education that have occurred since 1998?
The student financial aid programs authorized in the Higher Education Act are helping millions of today's students attend post-secondary school. The Federal Family Education Loan Program (FFELP) in particular is a program that works. It effectively and efficiently leverages limited federal dollars. The success of the FFELP in providing universal access to low cost loans that are inexpensive to the government indicates that most of the features of the current program should be preserved. However, the environment is in constant change and programs always can be improved. Suggestions for reform are set forth in our Reauthorization proposals. A few general thoughts are listed below:
- Because federal student assistance has not kept pace with increases in the cost of college, we believe maximum support should be provided to the Pell Grant and other campus-based programs in both the reauthorization and appropriations processes.
- We support a reasonable increase in loan limits that is well-targeted and compatible with budget and other priorities.
- The 10-year limitation on the repayment term for many borrowers is causing borrowers either to make large monthly payments, or choose loan consolidation, an alternative that may not be suitable for them. In our Reauthorization proposals, we have proposed changes to some of the current restrictions on repayment. (See Proposal A.)
- Loan consolidation has undergone a dramatic evolution over the past 15 years. Some of the changes were not intended. What began as a convenience for borrowers faced with writing checks to multiple servicers has become a means to refinance. As noted in our Reauthorization proposals, this program should be re-examined and modified. (See Proposal B.)
- The effectiveness of student loans can be improved by supporting more and better financial counseling. This is particularly true in the case of consolidation loans. (See Proposal B.)
- A number of recent federal and state laws are adversely impacting the FFELP. The Electronic Signatures in Global and National Commerce Act cleared the path for the use of electronic signatures and records. Nonetheless, the Department requires program participants to retain paper records. This requirement should be eliminated. (See Proposal 7 in the Matrix.)
- The USA PATRIOT Act requires individual lenders to conduct certain customer identification data matching. The Department can more efficiently conduct this match in a centralized manner as part of FASFA processing. (See Proposals 9A and 9B in the Matrix.)
- Various state laws have been enacted that restrict the use of social security numbers. The Department requires lenders to collect these numbers and use them in reporting borrower information. The Department has also concurred in using the numbers as account identifiers. State legislation that interferes with these uses should be pre-empted. (See Proposal 8 in the Matrix.)
c. How can the HEA programs be changed to eliminate any unnecessary burdens on students, institutions, or the Federal Government, yet maintain accountability of Federal funds? How can program requirements be simplified, particularly for students?
- By working together to ensure both the adoption and implementation of, as well as support for, the use of technology, the Department of Education and the FFELP community can provide for a better flow of information and information exchange throughout the program, thereby helping to make the measurement of accountability easier. Common information standards and a smooth delivery of funds should help eliminate unwanted burdens on all parties, especially students and the gatekeepers of student loans, the financial aid community. (See Proposal D.)
- With regard to simplifying program requirements for students and student borrowing, simplification does not always mean a "one size fits all" approach. Even with integrated systems, students have different needs with regard to borrowing, and subsequently with regard to debt management and subsequent repayment. These needs may vary by a student's discipline, their level of educational debt, as well as a host of other factors. The Student Loan Community Reauthorization Recommendations include a number of proposals that should help borrowers by not only simplifying the process, but by providing them choices in repayment and debt management designed for their particular needs. These include, but are not limited to:
- the suggested changes in Repayment Terms for borrowers, which not only allow for more reasonable monthly payments for all borrowers, but also allow the lending community more flexibility in offering borrowers graduated and other flexible repayment plans designed to meet their borrowers' particular needs (See Proposal A);
- the continuation of efforts to fully utilize modern data exchange mechanisms to improve oversight of student aid program functions (See Proposal D); and
- allowing the use of National Directory of New Hires (NDNH) database for purposes of helping locate borrowers who may need assistance in avoiding delinquency and subsequent default (as opposed to using this information only after borrowers have defaulted on their loans). (See Proposal H.)
- The Department of Education should focus its limited resources on organizations and entities identified as "high risk" by the Office of the Inspector General, the definition of which should be developed after consultation with students, borrowers, schools, loan providers, and other stakeholders in the higher education community.
d. How can we best prioritize the use of funds provided for postsecondary education and the benefits provided under the HEA programs? How can the significant levels of Federal funding already provided for the HEA programs best help to further the goals of improving educational quality, expanding access, and ensuring affordability?
The widespread availability of low-cost student loans has helped over 60 million students gain access to higher education. The benefits to these students, their families, and our society have been tremendous, while the costs to taxpayers have become increasingly modest. While we certainly want to continue to work to ensure that federal resources are spent as efficiently and effectively as possible, we also believe that additional federal resources should be devoted to improving access to higher education.
As discussed above, our specific recommendations are as follows:
- Consistent with the constraints of a federal budget that faces significant deficits over the near term, Congress and the Administration should increase funding for the Pell grant and other need-based grant programs.
- We support a reasonable increase in loan limits provided that it is well targeted and can be supported within the overall context of the budget and other financial aid priorities.
- We believe that extended repayment should be made available as an option for all borrowers with significant debt. (See Proposal A.)
- Congress and the Administration should revise the consolidation loan program so as to reduce the liability to taxpayers and refocus limited federal resources on helping students and improving access. (See Proposal B.)
e. Are there innovative and creative ways the Federal Government can integrate tax credits, deductions, and tax-free savings incentives with the federal student aid programs in the HEA to improve access to and choice in postsecondary education?
Well-documented research has shown that the current higher education tax credit and deduction programs are not as effective as Title IV of the HEA in promoting postsecondary educational opportunity. The Internal Revenue Code has its own internal targeted income cut-offs for various provisions, which bear no relation to the various income strata within the HEA for Pell, subsidized loans, etc. In addition, there is a time lag in the benefits received from tax credits and deductions. When the two laws operate in conjunction with one another, both the timing and the targeting of the subsidies are hit-or-miss, as opposed to the seamless net of support one might wish for.
The disconnect is exacerbated by the jurisdictional structure of the Congress, which gives the House Ways and Means Committee and the Senate Finance Committee primary jurisdiction over all changes to the Internal Revenue Code, while the Higher Education Act is under the jurisdiction of the House Education and the Workforce Committee and the Senate Health, Education, Labor, and Pensions Committee. Given the procedural and political obstacles to reform in this area, strong leadership on the part of the Administration and Congress is essential.
f. What results should be measured in each HEA program to determine the effectiveness of that program?
- The primary result for all Title IV programs should be the percent of potential college students, including adult learners, who are actually going on to postsecondary education and staying in school to completion.
- Given the impact that early awareness can enhance the probability of low-income students attending college, ED should review the extent to which existing outreach and college awareness programs are effectively reaching low-income students and their families.
- Other outcomes that should be measured are the susceptibility of the programs to waste, fraud, and abuse.