Lender Liaison Committee Report
Jane McNaughton, Chair

SASFAA Board Meeting November 5-7, 2004

Jane reported that President Bush, on October 25, signed into law H.R. 5185 which is the Higher Education Extension Act of 2004. This law extends all Higher Education Act program authority, which includes the Title IV federal student assistance programs, through September 30, 2005. The House passed the bill unanimously on October 6 and the Senate on October 9. Therefore, Reauthorization will not occur in 2004.

Jane also reported that H.R. 5186 cleared Congress on October 9. The Senate also approved H.R. 5186 unanimously and President Bush signed the bill into law on October 30, 2004. This bill is the Taxpayer-Teacher Protection Act of 2004 and it saves the Treasury money by suspending the half SAP/9.5% floor loan treatment on certain new loans issued during the 15 month period from October 1, 2004 through January 1, 2006. The $270 million anticipated savings derived from this bill will be used to fund teacher loan forgiveness benefits for math, science and special education teachers who agree to teach for 5 years or more in high poverty K-12 schools. The forgiveness would more than triple from the current $5,000 to $17,500.

Before the House vote, the Bush Administration issued the following statement: “The Administration strongly supports passage of H.R. 5186, which would stop excessive special allowance payments to certain lenders under the FFELP, and increase certain student loan forgiveness amounts for some teachers. Special allowance payments are currently made pursuant to regulatory interpretations made during the 1990s permitting lenders to extend the payments indefinitely. Those interpretations, however, run counter to the clear purposes of the Congress and the policy of this Administration. Today, certain lenders receive a Government-guaranteed return on certain loans of 9.5%, compared to the prevailing interest rate of approximately 3.5%. H.R. 5186 would ensure that certain financial techniques cannot be used to increase the volume of loans receiving this guarantee while a permanent statutory change is crafted for the HEA reauthorization bill” The bill would protect non-profit lenders that use funds from existing 9.5% loans to finance additional student benefits – such as loan forgiveness programs or reduced fees.

The College Board’s Trends in Student Aid 2004 offered some interesting statistics concerning educational loans.

In 2003-2004, loans comprised 56% of all aid while grants comprised 38%, work comprised 1% and education tax benefits comprised 5%.

Grants comprised 44% of undergraduate aid in 2003-2004 down from 48% in 1993-1994. 22% of graduate aid in 2003-2004 is grant based down from 37% in 1993-1994. 50% of undergraduate aid is loans and 75% of graduate aid is loans.

The average subsidized, undergraduate Stafford loan declined 14% in inflation-adjusted dollars between 1993-94 and 2003-04. The 56% increase in the number of borrowers led to a 31% real increase in total subsidized loan volume. The average unsubsidized Stafford loans for undergraduates increased by 8% in inflation-adjusted dollars over the decade.

Unsubsidized Stafford loans now constitute 48% of the total Stafford loan volume but only 43% of Stafford to undergraduates. Overall, including PLUS and other federal loans, the subsidized Stafford loan program has declined from 63% to 45% of total federal education loans over the past decade.

Under the Ford Direct Loan Program, the share of federal loans has declined from a peak of 33% in 1997-98 to 23% in 2003-04.

PLUS loan borrowers increased from 310,000 in 1993-94 to 735,000 in 2003-04. The average loan amount is $8,839 which is a 54% increase over the decade, after adjusting for inflation.

Non federal loan borrowing reached $11.3 billion in 2003-04, up 39% over the previous year and up 147% in three years. $10.6 billion is private loans and the rest are state sponsored loans. Borrowing through banks and other private lenders has increased 7% to 16% of education loan volume over the past 5 years.