Hearing On:
"Consolidation Loans: What’s Best for Past Borrowers, Future Students, and U.S. Taxpayers?"

Good morning.  Thank you all for joining us for this important hearing on the Consolidation Loan Program.  As we move forward with our efforts to reauthorize the Higher Education Act, we continue to address the many issues within that Act in order to help make postsecondary education a reality for low income students who previously had little chance of pursing such a dream.  This hearing is another in our continuing series and is meant to provide information to the members of this Committee about one of the loan programs within the Higher Education Act.  

Earlier today Chairman Boehner and I joined together to unveil the principles that will guide the remainder of the reauthorization of the Higher Education Act. When the Higher Education Act was authorized in 1965, its intention was to expand access and provide opportunities to low-income students. Yet today, I believe some higher education programs have lost sight of that original mission – and the crisis of skyrocketing college costs makes it more important than ever to ensure the higher education programs are reaching their full potential to expand access to higher education in America. I believe the principles we have outlined will help us address this crisis, and realign programs under the Higher Education Act to more fully meet the goal of expanding access to a college education. Briefly, these principles are: holding colleges accountable for cost increases; removing barriers, particularly those that disproportionately harm non-traditional students; improving quality and innovation by empowering consumers; and realigning student aid programs to ensure fairness for America’s neediest students and families. These principles will guide reforms to all areas in the Higher Education Act, including the Consolidation Loan Program, which is the topic of today’s hearing.

The Consolidation Loan Program was implemented as part of the reauthorization of the Higher Education Act in 1986.  The intent of the Consolidation Loan Program was to provide an opportunity for borrowers with multiple loan holders and a high level of student loan debt to consolidate that debt with one holder to allow for one monthly payment.  The program often provides a longer repayment period as well, thereby lowering the borrower’s monthly payment.  When a borrower applies for and receives a consolidation loan, all underlying loans are paid in full by the consolidating lender and a new loan is created in the amount of the debt paid in full.  The repayment term for that loan is then determined by the borrower’s outstanding debt at a fixed interest rate up to a maximum of 30 years.

When the program was originally developed, it was done so as a way to address a specific issue - providing for an opportunity to consolidate debt with one holder.  While the interest rate structure for this program has changed over time, it has always called for a somewhat higher rate than the underlying loans.  It is only because of the recent low variable interest rates that this program has now taken on a mantle of a home mortgage even though it is totally dissimilar.

With this rate decline, the program has seen a dramatic increase in the number of borrowers choosing to consolidate.  In 1998, there were 160,000 FFELP consolidation borrowers and 106,000 direct loan consolidation borrowers.  In 2002, there were 717,000 FFELP consolidation borrowers and 363,000 direct consolidation borrowers.  In terms of loan volume, there has been almost a 600 percent increase in FFEL volume and an approximately 270 percent increase in direct loan volume in the consolidation loan program.  While some of that increased volume is due to the availability of lower interest rates, some may be due to the increase in the number of organizations specifically marketing Consolidation loans, which had not occurred in years past.  

There is no question that I, and my colleague, Mr. Kildee, support the availability of low, variable interest rates for students.  As you know, the changes we made in the last reauthorization put in place the same variable rate formulas that have provided for the lowest rates in the loan program’s history.  With the ever rising costs of postsecondary education in this country, we want to continue to do all that we can to increase affordability and access to postsecondary education for low and moderate-income students. However I believe achieving that goal will require us to look carefully at where Federal resources and Federal support are being allocated. 

We must consider the needs of students attempting to pursue their postsecondary education and how we can best assist them in that goal.  This goal has to be reviewed in the context of whether it is prudent to continue long term subsidies for those who have already taken advantage of educational opportunities provided by the Higher Education Act and its many student aid programs and are now in the workforce, reaping the benefits of that education.  This is just one of the many questions facing this Committee as we work through the reauthorization process.

This hearing will allow us to learn more about how the Consolidation Loan Program fits into the mission of the Higher Education Act, how it fits into our goals for this reauthorization, that is, increasing access and affordability to students pursuing postsecondary education, and the fairness of the programs being offered.  I am hoping today’s discussion provides for a constructive discourse about the program, the different views as to how or if it should be amended and what is truly best for the students we are trying to help secure a quality education.  

I look forward to hearing all of the testimony to be presented here today and to our continued collaboration in addressing the needs of low and moderate-income students and in increasing access for these students to an affordable, quality education.