Ms. Leesa Sorensen, Senior Policy Analyst National Student Loan Program
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U.S. Department of Education
Higher Education Act Reauthorization Hearing
Kansas City, Missouri
March 7, 2003
My name is Leesa Sorensen. I am a Senior Policy Analyst with the National Student Loan Program. On behalf of NSLP, I would like to thank the Department of Education for holding this hearing and for giving NSLP the opportunity to provide testimony on our reauthorization proposals.
The National Student Loan Program is headquartered in Lincoln, Nebraska and is a private, nonprofit corporation in its second decade as a student loan guaranty agency. We are ranked 7th among the nations 36 guaranty agencies, with annual loan guarantees of over one billion dollars. NSLP works with lenders and post-secondary schools across the nation to help students gain access to low-cost student loans, learn about financial management, and avoid default.
Our testimony today will focus on a few of the reauthorization recommendations we have submitted to the Department. We think these proposals will improve access to higher education; make student loan repayment more successful for both borrowers and taxpayers; and enhance default prevention.
- Pell Grants. Our research shows that since the late 1980s, the Pell Grant purchasing power has sustained a 7 percent loss. We believe strong grant and loan programs play an important part in meeting access goals. Therefore, we hope steps will be taken to restore the Pell Grant purchasing power to levels of the 1980s or before.
- Stafford Loan Limits. We also believe that Stafford loan purchasing power should be restored to levels of the 1980s or before. The oldest of the current Stafford loan limits took effect after the 1986 reauthorization. Since then, the purchasing power of subsidized Stafford loans has diminished by more than 33 percent for freshmen, 23 percent for sophomores, and 33 percent for juniors and seniors. To restore this purchasing power, we believe that the annual maximum amount would have to rise above $5,200 for freshmen and sophomores and $8,200 for juniors and seniors. If loan limits are not reset during this reauthorization, students attending college on the eve of the next reauthorization could be borrowing under limits whose purchasing power has been eroded by 20 to 25 years of inflation.
- Repayment Length. NSLP also believes we need to consider restructuring the repayment options that are available to borrowers today. In 1998, Congress provided new borrowers with repayment relief if their aggregate debt totaled more than $30,000. However, most borrowers are still limited to the ten year repayment period - established more than 25 years ago - which requires a borrower to endure increasingly larger monthly payment amounts. Rather than this one-size fits all repayment period, we would suggest that the length of the Stafford loan repayment period should correspond to the amount of the borrower's outstanding FFELP indebtedness as is done in the Loan Consolidation program.
- Interest Rates. NSLP also believes that the variable interest rates for PLUS and Stafford loans must be preserved, but with two different interest rate ceilings - one while the borrower is in-school and another, higher ceiling while the borrower is in repayment. Having two different interest rate ceilings would help keep the cost of borrowing low when borrowers are students while reducing the cost of government subsidies when borrowers are no longer students. Higher interest rate ceilings during repayment might also motivate borrowers to repay their loans more quickly.
- Payment Requirements to Rehabilitate Defaulted Loans. Finally, NSLP believes that the payment requirements for the rehabilitation of defaulted loans should be modified from 12 to nine consecutive, voluntary, and timely payments. A borrower that doesn't make voluntary and timely payments defaults in 270 days, or nine months. The time it takes a borrower to get out of default should be reflective of the time it takes to go into default. Adjusting this repayment time to nine months would make loan rehabilitation more accessible to borrowers and would expedite the recovery of defaulted dollars for the federal government.
NSLP has submitted a number of other proposals to the Department (attached) that we believe would improve and streamline the administration of Title IV in general and FFELP in particular. Again we thank you for the opportunity to provide NSLP's views on the upcoming reauthorization. We would be happy to entertain any questions you may have at this time.