Tom Petri offer student loan legislation that could save $3.5 billion a year



Tom Petri of Fond du Lac, long an advocate of reforming a federal student-loan program, introduced a bill Wednesday that he says would cut costs to taxpayers and let students reap the benefits. Petri prefers market-based reforms to determine what lenders are paid for making loans. His bill would require federal officials to examine market-based mechanisms and test them under a pilot program. Up to 20% of all guaranteed student loans would be involved. Congressman Tom Petri of Wisconsin served as a Peace Corps Volunteer in Somalia in the 1960's.

Tom Petri offer student loan legislation that could save $3.5 billion a year

Petri offers student loan legislation
Changes could save $3.5 billion a year
By KATHERINE M. SKIBA
kskiba@journalsentinel.com
Posted: Oct. 31, 2007

Washington - House Republican Tom Petri of Fond du Lac, long an advocate of reforming a federal student-loan program, introduced a bill Wednesday that he says would cut costs to taxpayers and let students reap the benefits.
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At issue is what's called the Federal Family Education Loan Program. It lets private lenders make student loans at interest rates determined by a formula set by the government. In the end, the return to lenders is generous while the government guarantees almost all loans, relieving lenders of most risk, Petri said.

Under current law, banks are paid the commercial lending rate plus 1.79%, he said.

The world of post-secondary student loans has come under scrutiny after scandals involving private lenders paying commissions to colleges or plying college officials with trips and other gifts to win their business.

Petri prefers market-based reforms to determine what lenders are paid for making loans. His bill would require federal officials to examine market-based mechanisms and test them under a pilot program. Up to 20% of all guaranteed student loans would be involved.

One mechanism would auction existing loans; another would auction the rights to originate such loans.

The pilot program would last no more than two academic years. Savings that resulted would go for need-based financial aid. Petri's ultimate aim is to implement reforms across the entire program.
Prefers government loans

Petri, generally, prefers the federal government's Direct Student Loan program, which has the government make loans and cuts private lenders out of the equation. He estimates that taxpayers spend $7 billion each year on subsidies to private lenders in the Federal Family Education Loan Program. If the program was abolished, and all loans were made through the Direct Student Loan program, it could save taxpayers roughly $1.5 billion to $3.5 billion a year, he said.

For now, though, he's willing to have both the government and private lenders in the student loan business. "There's something to be said for true competition," he said.

His bill is called the SLAM Act, for Student Loan Auction Market. It picks up from an earlier legislative effort that passed the House but failed to advance in a higher-ed bill that became law.

Links to Related Topics (Tags):

Headlines: October, 2007; RPCV Tom Petri (Somalia) ; Figures; Peace Corps Somalia; Directory of Somalia RPCVs; Messages and Announcements for Somalia RPCVs; Politics; Congress; Student Loans; Wisconsin

When this story was posted in November 2007, this was on the front page of PCOL:




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