(WASHINGTON, D.C.) – U.S. Senator Patty Murray (D-Wash.) today engaged in a Senate floor Chair of the full Senate Health, Education, Labor and Pensions (HELP) Committee, of which Murray is also a member – to address her concerns when the Higher Education Act is considered in House-Senate negotiations.
Senator Murray wants to permanently close the loophole and end a runaway subsidy that some lenders are abusing today to create new loans subsidized far above prevailing interest rates. These overpriced loans were supposed to have ended more than ten years ago, but they continue today and are growing in volume.
"Currently, students are enjoying low interest rates on their loans," Murray said during the discussion. "That was not always the case. In the 1980s, lenders were promised a rate of return at 9.5 percent on their loans when interest rates were high, but we were trying to keep costs down for students. In 1993, when interest rates were coming down, extra payments to lenders on 9.5 percent loans were supposed to phase out. However, they did not start phasing out and were rapidly increasing until I took action with my colleagues to end this practice."
This is Senator Murray’s third attempt to close the subsidy loophole. On September 15th, she offered an amendment in the Appropriations Committee to the Labor-HHS-Education Appropriations bill. Her amendment failed on a party line vote. Then on September 22nd, Senator Murray spoke about the special interest giveaway on the Senate floor and urged her colleagues to act. On September 29th, Murray introduced the Student Loan Abuse Prevention Act. She also addressed the issue during her discussion of the Higher Education Act when the HELP Committee approved the bill.
"I tried to close this loophole in the Appropriations Committee. I tried to get the Administration to act. Now, I’m offering the Senate another opportunity to close this egregious loophole and finally put an end to this boondoggle. I simply can’t understand why anyone supports continuing to ship billions of dollars out the door and out of the hands of our students, but I’ll continue this fight for as long as it takes," Senator Murray said.
Murray noted that the Department of Education could end the runaway subsidy with the stoke of a pen. If the loophole stays open another six months, it could cost taxpayers $2.8 billion in interest payments.
On an average student loan today, with an interest rate of 3.37 percent, the government pays an SAP of .2 percent. On the 9.5 percent loans the government is paying 6.13 percent. According to GAO, two years ago this overpayment cost taxpayers $400 million. Today, it has skyrocketed to $1 billion in overpayments in fiscal year 2004.
The Murray legislation is a permanent, comprehensive fix to the abuse of the 9.5 percent rate. It will produce estimated savings of $500 million over years, and Murray has demanded that any savings produced by closing the loophole be given back to America’s students.
The Higher Education Act passed the committee in September and is attached to the budget reconciliation being considered by the Senate now.
The text of the exchange between the Senators follows:
SENATOR MURRAY:
Mr. President, I rise today to discuss an issue that I have been working on for the past year – ending a runaway subsidy in the student loan program. I would like to ask Unanimous Consent that Senators Durbin and Clinton be added as cosponsors to amendment number 2353.
Currently, students are enjoying low interest rates on their loans. That was not always the case. In the 1980s, lenders were promised a rate of return at 9.5 percent on their loans when interest rates were high, but we were trying to keep costs down for students. In 1993, when interest rates were coming down, extra payments to lenders on 9.5 percent loans were supposed to phase out. However, they did not start phasing out and were rapidly increasing until I took action with my colleagues to end this practice.
Last year, I along with my colleagues, including Senators Kennedy and Durbin, who support closing this loophole passed the Teacher-Taxpayer Act. The Teacher-Taxpayer Act took aim at some of the most egregious abuse of this runaway subsidy and returned that money to student’s pockets. However, while the Teacher-Taxpayer Act took great strides forward on this issue, the federal government is still paying out $1 billion a year on the 9.5 percent loans. I believe we are far overdue in ending this practice.
I have filed an amendment to fully and permanently end the remaining 9.5 percent subsidy loophole, which according to the Congressional Budget Office will provide a savings of approximately $500 million. I have stated my intent repeatedly to finally close the remaining loophole. The Higher Education Act reauthorization bill moving through the House of Representatives closes this loophole and Education Secretary Spellings have called for the ending this remaining loophole.
SENATOR ENZI:
Will the Senator yield?
SENATOR MURRAY:
Certainly.
SENATOR ENZI:
I thank my colleague from Washington for her work on higher education and for her passion about this issue in particular. She has been very interested in the higher education bill that we approved in committee, and was among those who supported its unanimous approval. My colleague mentioned the Taxpayer-Teacher Protection Act, which I support and which the committee acted to make permanent. I would add that the Taxpayer Teacher Protection Act has reduced holdings of these loans by more than $1.2 billion in only six months since its enactment.
While various estimates have been given about savings attached to ending recycling, it would also put an end to an estimated $840 million in student benefits provided by non-profit lenders over the next 5 years. By some estimates, that could mean a net loss of nearly $550 million in student benefits. Because of the efforts among lenders to provide the most competitive benefits, it is likely that the net loss in student benefits would be much greater. It is also important for me to point out that the Senator’s amendment does not capture these savings for students, it only ends the practice of recycling, so the net loss in student benefits would likely exceed $1 billion.
Mr. President, I would also note that Federal tax law prohibits non-profit lenders from retaining these subsidies that the Senator has described. I would ask my colleague if she agrees with my assessment, that Federal tax law prohibits non-profit lenders from retaining the 9.5 percent subsidy, and that excess funds must be returned to the Treasury, or be used to provide student benefits?
SENATOR MURRAY:
I would agree with that assessment, yes.
SENATOR ENZI:
I thank my colleague for her commitment to continue to work with me on this issue in conference and look forward to reaching a compromise on this issue. I believe it is important that we get this issue right, so we can best serve students. I yield back to the Senator from Washington.
SENATOR MURRAY:
Thank you. We may not fully agree on this issue but I commend my colleague’s efforts to develop a bipartisan Higher Education Act reauthorization and the challenges in moving such a bill through the Senate on a reconciliation bill.
I thank my colleague Senator Kennedy for his leadership on this issue, and I look forward to working with him and the Chairman through conference on this issue. I appreciate the Chairman’s commitment to work with me through that process to make sure my voice is heard and interests are met. I think it is critical that, as we work with the House in conference on this issue and others, that we ensure protection and improvement of student benefits, and that any savings generated on this issue be returned to students. We must also work to advance and protect diversity in the lending market, which leads to the competition that provides for improving student benefits in lending.
I thank my colleague for his commitment to working with me and look forward to working with him and Senator Kennedy through that process.
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