"Student Loan Scandal" [editorial, Sept. 10] addressed an issue that has been around for 24 years. Under legislation passed in 1980, when Treasury bill rates approached 18 percent, loans financed with tax-exempt bonds are entitled to half the payment made on other student loans, with a 9.5 percent guaranteed floor. At the time, this provision brought diminished returns for loans held in tax-exempt bonds.

The U.S. Department of Education broadened the reach of this provision in 1996, when it clarified that loans financed with old tax-exempt bonds remain subject to the special provisions when refinanced. This results in a higher-than-market-rate return when interest rates are low.

We support legislation to reverse this policy. Under the tax code, however, excess lender payments in most cases must either be returned to the Treasury or used to lower borrower payments.

The editorial also argued that the current situation provides a reason to look at expanding the direct loan program. Some of the same people who are publicizing the current situa- tion believe that the federal subsidy allocated to that program should be increased.

This proposal is ill-advised. Students and schools benefit when the private-sector program and the direct government program compete on a level playing field.



National Council of Higher Education

Loan Programs



The Sept. 10 editorial about federal student loans inaccurately claimed that Republicans have opposed efforts to eliminate these excess subsidies.

Republicans have been leading the drive to eliminate the 9.5 percent floor interest subsidy -- known as the special allowance -- being paid to lenders on certain federal student loans. In February President Bush called on Congress to do away with the excess subsidy payments. Republicans in the House introduced legislation -- H.R. 4283, the College Access and Opportunity Act -- that would put a permanent end to this practice.

Unfortunately, Democrats have opposed efforts to move this legislation forward. As a result, the excess subsidy payments continue under current law. Now, in an election-year gimmick, House Democrats have offered a legislative band-aid that would do nothing to permanently stop the excess interest payments.

We supported the amendment on the floor of the House to make clear our commitment to ending this subsidy, but we strongly believe a permanent legislative solution -- as we proposed in H.R. 4283 -- will be best for students, parents and other taxpayers.


U.S. Representative (R-Ohio)


House Committee

on Education and the Workforce


U.S. Representative (R-Calif.)


U.S. House Subcommittee

on 21st-Century Competitiveness