Witnesses: Eliminate FFELP

Two of four witnesses appearing at a hearing before the U.S. Senate Committee on Health, Education, Labor and Pensions recommended the elimination of the Federal Family Education Loan Program, the largest federal student-aid program. The committee, chaired by Sen. Edward Kennedy, D-Mass., conducted a hearing on “Higher Education, Higher Cost and Higher Debt: Paying for College in the Future.”

Jon Oberg, former legislative liaison for the U.S. Department of Education, recommended eliminating or phasing down the FFELP guarantee on new loans. Oberg suggests the savings could be moved to the Pell-Grant program and that loan needs could be met through the Federal Direct Loan Program or private loans.

Tamara Draut, author of Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead, told the panel that the nation’s federal financial-aid system has become “a debt-for-diploma system.” Draut advocated replacing the FFELP with direct loans and eliminating higher-education tax benefits.

Suze Orman, host of a television personal-finance program, told the committee that student-loan borrowers need better information about the consequences of indebtedness, repayment options and loan consolidation. Orman supported measures to reduce student-loan-interest rates, increase Pell-Grant awards, increase income limits to qualify to deduct student-loan interest and ease loan-repayment rules.

Sandy Baum, senior policy analyst for The College Board, and professor of economics at Skidmore College, advised the panel that the typical student “is not drowning in debt.” Even so, Baum suggested policy changes that would benefit students who are overburdened with education debt. Baum recommended income-contingent repayment plans that would eliminate payment obligations for borrowers with incomes below 150 percent of the poverty level and plans that assure payments do not exceed 10 percent of the typical borrower’s income. She also recommended expanded loan forgiveness for public service and an increase in Stafford-loan limits to contain the growing reliance on private loans.

In his remarks opening the hearing, Kennedy advocated for the direct-loan program as being simpler and less costly to the federal government.