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HR 2535 -- 10/21/97

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Office of Management and Budget


October 21, 1997

H.R. 2535 - Emergency Student Loan Consolidation Act of 1997
(Rep. McKeon (R) CA and 22 cosponsors)

The Administration opposes the reported version of H.R. 2535, the"Emergency Student Loan Consolidation Act of 1997", and will work to amend the bill in the Senate in at least two respects. First, H.R. 2535 needs to be amended to ensure that all student loan borrowers who are seeking to consolidate their loans are treated equitably and provided consolidation benefits comparable to those available in the direct loan program (with the exception of income-contingent repayment). In addition, the bill needs to be amended so that services to student loan borrowers under both the direct loan and the Federal Family Education Loan (FFEL) programs are not impaired by reducing funds available for administrative expenses.

Allowing direct loan borrowers to consolidate their student loans into the Government guaranteed FFEL program only addresses one-third of those loan consolidation applications in the backlog. The other two-thirds are either not being served by, or are unsatisfied with, the FFEL program and are seeking another option. These amendments are necessary to ensure that the FFEL program is open to serving all of the borrowers who are served by direct lending, offering similar flexibility in repayment.

The Department of Education's private-sector contractor is now on track to eliminate the backlog of direct consolidation loan applications, resume accepting new applications by December 1st, and process them on a timely basis. Nevertheless, the Administration would support a bill that truly benefits student borrowers seeking to consolidate their loans.

The Administration will work in the Senate to amend the bill. At a minimum, the bill must be amended to:

  • Eliminate the $25 million reduction in funds available under section 458 of the Higher Education Act of 1965, and substitute an acceptable offset to the cost of the bill. This funding reduction would jeopardize service to students and schools in both loan programs, and violate the funding levels set in the bipartisan budget agreement. These levels represent the bare minimum needed to support the effective delivery and oversight of almost $50 billion in student financial assistance in FY 1998 to over eight million students and their parents.

  • Add a provision requiring a FFEL lender that wants to consolidate student loans during the time period covered by the bill to make consolidation available to all borrowers applying for it on the same basis as consolidation is available under the direct loan program. This would require, for example, that lenders provide consolidation loans to all borrowers that would be eligible for them under the current direct loan program, provide interest rates that are equivalent to direct consolidation loan interest rates, and provide opportunities for borrowers to switch among available repayment options.

The Administration is pleased that the reported version of H.R. 2535 includes the Administration's proposal to ensure that a student is able to enjoy the full benefit of the new HOPE Scholarship or Lifetime Learning tax credit without jeopardizing his or her future eligibility for student financial assistance. The inclusion of this proposal, however, does not overcome the bill's shortcomings as described above.

Pay-As-You-Go Scoring

H.R. 2535 would affect direct spending and receipts; therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. OMB estimates that H.R. 2535 would result in a net decrease in direct spending of $6.6 million in FY 1998 and a total of $19.6 million in FYs 1998-2002.

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