A r c h i v e d  I n f o r m a t i o n

    FOR RELEASE             Contact:  Stephanie Babyak (202) 401-2311    November 10, 1995                           (703) 241-8962 (home)                                         Jane Glickman (202) 401-1307                                                (202) 332-3992 (home)

"Over these three decades, tens of millions of Americans have built a better future with the investment in human capital made by these programs," Riley said, referring to the landmark legislation that established the federal student loan and grants programs. "There has always been a bipartisan consensus that investment in education produces stronger citizens and a more productive economy."

In the 30 years since the 1965 Higher Education Act was passed, more than 195 million grants and loans have been made to postsecondary students, representing a $300 billion investment in higher education. Two years ago President Clinton initiated -- and a bipartisan Congress passed -- the Direct Student Loan program.

This year more than $30 billion in federal financial aid is available to qualified students, accounting for 70 percent of all financial assistance awarded to postsecondary students.

"Over the years there was a growing recognition that change was necessary, Riley said. "The old guaranteed student loan program is very complicated, very expensive and too often has resulted in students defaulting on their loans."

Under direct lending, borrowers bypass lenders, guarantee agencies and other middlemen that make up the old system. Federal loans are arranged directly through campus student aid offices -- quick, easy, and efficient. Borrowers also benefit from flexible repayment terms that allow smaller initial monthly payments in the early stages of their career when income is likely to be low. About 40 percent of this year s student loans were issued through the Direct Loan Program. Some 1,350 schools and more than 2 million borrowers are enlisted in direct lending, with another 500 schools slated to join next year. Some of the schools currently in the program include the University of Michigan, University of Florida, Ohio State University, Northern Arizona University, University of California-Berkeley, Boston University, New York University, Colorado State University and University of Illinois.

Final votes on the future of direct lending are expected in the House and Senate next week as part of the budget reconciliation process.

"The national Republican leadership claims to favor more competition, less red tape and a balanced federal budget," Riley said. "Yet, when given the opportunity to expand a program that clearly works -- and saves taxpayers billions of dollars -- they have sold out to special interests. It's appalling."

Riley said the Congressional majority has been unable to cover up the fact that direct lending saves money. He cited the conclusion of a Bush Administration appointee to the Federal Reserve Board, Lawrence Lindsey, who recently wrote, "As long as it is necessary to provide a profit to induce lenders to guarantee student loans, direct lending will be cheaper."

"It's about billions of dollars in profits for banks at the expense of students and families who are struggling to pay for a college education," Riley said. "The national Republican leadership has decided to side with financial industry lobbyists and against students and families."

A notable exception, Riley said, is Rep. Thomas Petri, a conservative Republican from Wisconsin, who recently said, "If at the end of this whole process we do kill off direct lending, President Clinton and others will tell the American people that the Congress under Republican control shut down a conservative reform effort that was good for students and schools in order to keep the gravy flowing to powerful special interests. And that argument will resonate with the American people because it will be right."

The House Republican majority has reportedly denied Petri a role in negotiating a final budget because of his support for direct lending ["Supporters Intensify Their Efforts to Save Direct-Lending Program," The Chronicle of Higher Education, Nov. 10].

In a Nov. 2 letter to Riley, President Clinton said, "The best solution to the current dispute is for us in Washington to give schools across the nation the freedom to choose the student lending program that works best for them. We should let the market work by letting the consumer decide. Every school should have the option to join Direct Lending."