```

[Senate Hearing 110-892]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 110-892
 
                     FULFILLING THE PROMISE OF AN 
                      AFFORDABLE COLLEGE EDUCATION

=======================================================================

                             FIELD HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

   EXAMINING ENSURING AFFORDABLE ACCESS TO HIGHER EDUCATION FOR ALL 
   STUDENTS, FOCUSING ON STUDENT LOAN AVAILABILITY IN VERY DIFFICULT 
                             ECONOMIC TIMES

                               __________

                             APRIL 21, 2008

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                                 senate

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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

               EDWARD M. KENNEDY, Massachusetts, Chairman

CHRISTOPHER J. DODD, Connecticut     MICHAEL B. ENZI, Wyoming,
TOM HARKIN, Iowa                     JUDD GREGG, New Hampshire
BARBARA A. MIKULSKI, Maryland        LAMAR ALEXANDER, Tennessee
JEFF BINGAMAN, New Mexico            RICHARD BURR, North Carolina
PATTY MURRAY, Washington             JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island              LISA MURKOWSKI, Alaska
HILLARY RODHAM CLINTON, New York     ORRIN G. HATCH, Utah
BARACK OBAMA, Illinois               PAT ROBERTS, Kansas
BERNARD SANDERS (I), Vermont         WAYNE ALLARD, Colorado
SHERROD BROWN, Ohio                  TOM COBURN, M.D., Oklahoma

           J. Michael Myers, Staff Director and Chief Counsel

                 Ilyse Schuman, Minority Staff Director

                                  (ii)

                            C O N T E N T S

                               __________

                               STATEMENTS

                         MONDAY, APRIL 21, 2008

                                                                   Page
Gee, E. Gordon, J.D., Ed.D., President, Ohio State University....     1
Brown, Hon. Sherrod, a U.S. Senator from the State of Ohio, 
  opening statement..............................................     2
    Prepared statement...........................................     5
Miller, Melissa, Former Student, Cincinnati, OH..................     9
    Prepared statement...........................................    10
Van Camp, Debra, Student, Ohio State University, Columbus, OH....    11
    Prepared statement...........................................    14
Hart, Natala K., Senior Advisor for Economic Access, Ohio State 
  University, Columbus, OH.......................................    16
    Prepared statement...........................................    18
Kohne, Don, Managing Director, Student Lending Works, Cincinnati, 
  OH.............................................................    20
    Prepared statement...........................................    22
Nassirian, Barmak, Executive Director, American Association of 
  Collegiate Registrars and Admissions Officers, Washington, DC..    24
    Prepared statement...........................................    28

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Letter from Debra Van Camp...................................    36

                                 (iii)

       FULFILLING THE PROMISE OF AN AFFORDABLE COLLEGE EDUCATION

                              ----------                              

                         MONDAY, APRIL 21, 2008

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:00 a.m. at 
Ohio State University, Michael E. Moritz College of Law, Hon. 
Sherrod Brown, presiding.
    Present: Senator Brown.

      STATEMENT OF E. GORDON GEE, J.D., ED.D., PRESIDENT, 
                     OHIO STATE UNIVERSITY

    Mr. Gee. Ladies and gentlemen, perhaps we can get started.
    Thank you very much for coming and joining us and welcome 
to the Moritz College of Law at the Ohio State University. 
We're honored to have you here and most importantly, we're 
honored to have our Senator, Senator Sherrod Brown.
    Thank you, Senator, for being here with us, thank you for 
coming and frequenting our campus. We deeply appreciate it and 
for holding this hearing at this University.
    Of course, this is precisely what universities are about, 
places for us to be a forum for public discussion, debate, 
opportunity for us to understand the issues of the moment, the 
issues of opportunity, and the consequences of the decisions 
that we are making. I appreciate the Senator's outreach and 
assistance in issues critical to Ohio State, and I might note, 
all higher education, both public and private.
    We now, in this State--having been here for a little over 6 
months--have a powerful cohort of Ohio's elected leaders at the 
Federal level, at the State level, in the legislature, who 
recognize the central role of public higher education.
    Senator, you have been one of those who has strongly 
recognized that role, and have done so for years, and I 
appreciate that.
    Of course, the issue of affordability and student loan 
problems--as we read in the newspapers, as we experience it 
ourselves--are very much on everyone's mind.
    But, I remind ourselves, as much as anything, Senator, that 
we are the State's Land Grant University, and we have a 
particular responsibility to create both access and opportunity 
for all students who will come to the Ohio State University, 
because this is, in many ways, the University that opens up the 
American Dream to so many students.
    I'm glad today that we're able to share a few resident 
experts, Tally Hart and Debra Van Camp. These two are stars at 
Ohio State, we're working hard also to assure that all of our 
promising students have resources to earn degrees here.
    This is a very important issue for me, personally. When I 
came, I made the affordability pledge, which was that we were 
going to work and to assure that every student who comes to 
Ohio State is able to afford to come to this institution.
    We also realize that we're doing that in a climate in which 
these are difficult challenges, economically, for so many 
people, and therefore, in my view, now it's precisely the right 
time for the government, for lenders, and universities to join 
together in creating solutions and helping our students to 
achieve their dreams and their higher education goals.
    I welcome this partnership with you, Senator, I welcome the 
partnership with our colleagues in our other public 
institutions who are here today, and obviously, I welcome the 
opportunity for us to be part of the solution. Thank you again 
for being here, and welcome to Ohio State.

                   Opening Statement of Senator Brown

    Senator Brown. Thank you, Doctor.
    [Applause.]
    Dr. Gee, thank you very much for always being such a good 
face for Ohio State, substantively, and every other way. We 
appreciate the work that you do so much.
    Dean Nancy Rogers, thank you for welcoming us, letting us 
use your office and welcoming us to the law school. Thank you 
very, very much. I really appreciate that.
    I call the committee to order. This is an official hearing 
of the Health, Education, Labor, and Pensions Committee. We 
meet, obviously, most of the time in Washington, occasionally--
this is my first field hearing of this kind, in Ohio. It will 
not be my last, but it is the first, and we chose the largest 
university in the State to talk about issues that obviously are 
so very, very important.
    I want to introduce Will Jawando, who is with our 
Washington office, and Will works on education and immigration 
and other rather complicated issues. We're glad he's here 
today, too.
    The way this hearing will work is, I will make a relatively 
brief opening statement and I will introduce the four of you--
and there will soon be a fifth who is coming from Cincinnati, 
apparently who's gotten lost on this campus, which is also easy 
to do. Then I want to introduce the five of you and then hear 
your statements and then we'll just discuss. I'll ask 
questions, and we'll go from there.
    We're here this morning to examine two critical issues--
ensuring affordable access to higher education for all 
students, and making sure student loans remain available in our 
State, and nationally during these difficult economic times.
    A couple of months ago, a distraught mother from Cincinnati 
wrote me about the private loan her daughter had taken out to 
go to college. Her daughter had borrowed $21,000, but was 
facing a bill of $102,000 as a result. She sent me the 
disclosure sheet on the loan because she couldn't believe what 
she saw.
    She wrote, ``I've shown the statement to a loan officer at 
my bank, and also to my attorney. They both expressed to me 
they've never seen anything like that, and there must be a 
mistake.'' There wasn't, unfortunately.
    In the last 15 months, I've held about 95 roundtables 
around the State--discussions with 20 or 25 people in most of 
the State's counties. These roundtables are made up of a cross-
section of a community. At almost every one of these 
roundtables, I've heard from parents and from students, and 
from employers, about the high cost of college education.
    Many people who have come to me--like Ms. Van Camp and Ms. 
Miller--are first in their family to go to college, many are 
unsure about how they can afford college, or are wary of the 
process of applying to college that lay ahead.
    That challenge was laid out to me, perhaps most poignantly 
at a graduation I spoke to at Sinclair Community College in 
Dayton. The President--before the commencement, or at the 
beginning of the commencement, speaking to the thousand 
graduates or so, asked how many of them at this community 
college in Dayton were the first in their family to go to 
college. About two-thirds of the students put their hands up.
    He then asked, how many of you were told at some point in 
your life by someone--a relative, a neighbor, someone you had a 
summer job with--were told that you are not college material? 
And about 25 or 30 percent of the students put their hand up.
    The good news from that story is that there were 7 young 
people in the front row--three of those students I noticed had 
put their hands up to both questions, including being told they 
didn't have what it takes to go to college. Those students 
earlier that week had received their diplomas from their local 
high school at Dayton Public Schools, and that night were 
getting their diplomas from a school of higher education, which 
was pretty exciting.
    A couple of weeks ago, I convened a college President's 
summit in Washington to discuss ways we can work together to 
better link labor needs to the skills of the workforce. All of 
us know our State is changing, the manufacturing jobs that were 
pretty plentiful 20 or 30 years ago, some of them are gone, and 
the needs of business and industry have changed.
    Today's generation of students, as we know, will need new 
skills and a knowledge base that previous generations did not 
need. It's imperative that our students, in this State and 
across the country, are able to attend college and get the 
skills they need to compete. It's equally important that a 
college education is affordable, and doesn't leave those 
students with crippling debt.
    The average student in Ohio will graduate with roughly 
$20,000 in student loan debt. That, in some ways, is not the 
worst of it. Costs are expected to rise dramatically, forcing 
more and more students to turn to high-cost private loans to 
fill the growing gap between Federal aid and tuition costs. 
These loans can carry interest rates--as we'll hear today--of 
as much as 15, 16, 17, 18 percent.
    I'm concerned that not enough attention has been paid to 
the increasing prevalence of these loans, and their impact on 
students and families. As it stands, these loans are growing at 
a tremendous rate--these private loans outside of direct 
lending--increasing by 27 percent in the last year.
    The reasons for this growth are ours to blame, in a lot of 
ways, and are fairly simple. The cost of college has climbed 
steadily in the past 5 years, while Federal aid has been nearly 
stagnant.
    Let me talk for a moment about Federal aid. In Ohio, the 
median income increased 3 percent between 2000 and 2006 while 
tuition at 4-year public schools went up 53 percent, and 
tuition at 4-year private schools, starting at a higher base, 
of course, went up 28 percent. Federal loan limits have not 
kept up.
    In 1972, a freshman could borrow $2,500 in a year in 
Federal loans, last year the number had barely moved to $2,625. 
Had it kept pace with inflation, loan limits would be $12,000. 
We can't sustain an educational system that forces students to 
sign away their economic future when they sign up for college.
    In July, Congress took a good step forward when we passed 
the College Cost Reduction Act. A freshman can now borrow 
$3,500 in his or her freshman year, but even though the limits 
in the first 2 years have increased--not enough--but increased, 
the overall cap on borrowing remains the same at $23,000 
overall for a dependent undergraduate. The College Cost 
Reduction Act does nothing to change the cap, because the HELP 
Committee decided correctly, in my view, that the bulk of 
savings we could achieve should be put back into Pell grants 
and direct student grants.
    With a price tag for 4 years of college at somewhere in 
excess of $120,000 for private schools, in excess of $50,000 
for public institutions, there's obviously a big gap remaining 
for far too many students. That gap gets filled in many ways--
savings, work, grants, PLUS loans, you name it.
    But a disturbing trend, more and more students are forced 
to turn to credit cards, and high-cost private loans. That 
brings me back, for a moment, to the private loans.
    According to testimony before the Banking Committee last 
year, Sallie Mae reported issuing $7 billion in private loans, 
and $15 billion in Federal loans last year. In other words, one 
in every three loan dollars generated by the biggest student 
lender in this country was a private loan.
    Though the private loan market has cooled recently, due in 
large part, to the credit crunch with tuition and fees 
continuing to rise, and Federal aid stagnant, the trend is 
likely to continue.
    As this chart indicates, the private loan program may well 
outstrip the Federal program over the next decade. The Federal 
loans are the blue, the private loans--listed here as 
alternative loans--are the burgundy color.
    The chart shows the growth rate of the two programs over 
the past several years predict how large they will grow if 
current trends continue. Now the Federal loans, public loans, 
dwarf--by a significantly less amount, each of the last few 
years--dwarf the private bank loans, but you can see what's 
happening in the years ahead.
    Private loans may well be on par with the Federal loan 
program by the end of the 5-year reauthorization that the House 
and Senate are currently considering. Congress very often--too 
often--legislates through the rear-view mirror. We wait until a 
problem becomes close to unmanageable before we feel compelled 
to act. This hearing is an attempt to shine a light on a 
problem before it becomes that unmanageable problem.
    I have introduced a bill to create an alternative to 
private loans that would create a supplemental loan program, 
run by the Federal Government. It would operate similarly to 
the direct loan program for unsubsidized Stafford and PLUS loan 
programs, that are saving the government money. It would set up 
a competition that way which we believe would keep these 
alternative loans' interest rates down.
    I offered a floor amendment on this, we've introduced 
legislation to do this, we'll continue to work with Governor 
Strickland and Chancellor Fingerhut, who are interested in 
this, to make sure students aren't burdened with overwhelming, 
high-cost debt.
    We must act, because the current marketplace for private 
student loans has two very serious problems: it's not always 
operating in the best interest of students, and the price of 
these loans is just too high. The problem--the tremendous cost 
of these loans was pointed out in a cover story, a USAToday 
article early last year. That story correctly noted that all of 
our efforts to remove conflicts of interest and backroom deals 
would not help with the incredible interest rates that these 
loans carry.
    Referring to our efforts to better police the market, the 
authors write,

          ``These efforts would do little to rein in the 
        fastest-growing area of the market--loans that aren't 
        federally backed, those whose rates can generally rise 
        without limits. Bills in Congress wouldn't affect rates 
        on these loans, often called private loans, because 
        they're outside of any Federal system.''

    The story goes on to quote David Hartung, with the credit 
rating agency DBRS,

          ``Enrollment continues to go up, tuition continues to 
        skyrocket, while Federal loan limits remain low. That's 
        the perfect storm for the continued growth of private 
        loans,''

as that last chart showed.
    How students weather that storm is up to us--we can decide 
that students in our country--like the young students that will 
give testimony today--should no longer face such crippling 
debt. We have the opportunity to act now to ensure that Ohio 
students are not discouraged from attending college, and are 
equipped with the skills to compete in the global economy, and 
fill our jobs of the 21st Century.
    I look forward to hearing from each panelist, I will 
introduce the panelists starting from left to right, and then 
we will begin the testimony. I will introduce all of you before 
the testimony.
    [The prepared statement of Senator Brown follows.]

                  Prepared Statement of Senator Brown

    I call this committee to order. First, I would like to 
thank President Gee for his warm introduction and Dean Rogers 
for hosting us here at the Moritz College of Law. We are here 
this morning to examine two critical issues: No. 1, ensuring 
affordable access to higher education for all students; and No. 
2, making sure student loans remain available in these tough 
economic times.
    A couple of months ago a distraught mother from Cincinnati 
wrote me about the private loan her daughter had taken out to 
go to college. Her daughter had borrowed $21,000, but was 
facing a bill for over $102,000 as a result. She sent me the 
disclosure sheet on the loan because she couldn't believe what 
she saw. ``I have shown the statement to a loan officer at my 
bank and also to my attorney,'' she wrote. ``They both 
expressed to me that they have never seen anything like this 
and there must be a mistake.''
    I have held more than 90 roundtables around the State, and 
at almost every one, I hear stories like these from students, 
parents, returning veterans. Many are the first in their family 
to attend college and are unsure they can afford college and 
are wary of the process of applying to college that lay ahead.
    I convened a College Presidents Summit in Washington 
earlier this month to discuss ways we can work together to 
better link labor needs to the skills of the workforce. All of 
us know Ohio is changing. The manufacturing jobs that were here 
20 or 30 years ago are gone and the needs of business and 
industry have changed. Today's generation of students will need 
new skills and a knowledge base previous generations did not 
have.
    It is imperative that students in Ohio and across the 
Nation are able to attend college and get the skills they need 
to compete. It is equally important that a college education is 
affordable and does not leave students with crippling debt. We 
have work to do. The average student in Ohio will graduate with 
roughly $20,000 in student loan debt. And that's not the worst 
of it. Costs are expected to rise dramatically, forcing more 
and more students to turn to high cost private loans to fill 
the growing gap between Federal aid and tuition costs. These 
loans can carry interest rates of more than 18 percent.
    I am concerned that not enough attention has been paid to 
the increasing prevalence of these loans and their impact on 
students and families. As it stands, these loans are growing at 
a tremendous rate, increasing by 27 percent each year. The 
reasons for this growth are fairly simple. The cost of college 
has climbed steadily over the past 5 years, while Federal aid 
has been nearly stagnant.
    Let me focus on Federal aid for a moment. In Ohio, the 
median household income increased just 3 percent between 2000 
and 2006, while tuition went up 53 percent at 4-year public 
schools and 28 percent at 4-year private schools. Federal loan 
limits have not kept up. In 1972, a freshman could borrow 
$2,500 in Federal loans. Last year, that number had barely 
moved to $2,625. If it had kept pace with inflation, Federal 
loan limits would now be $12,000. We cannot sustain an 
educational system that forces students to sign away their 
economic future when they sign up for college.
    In July, Congress took a good step forward and passed the 
College Cost Reduction Act. Now a freshman can borrow $3,500 in 
his or her first year. But even though the limits in the first 
2 years have been increased somewhat, the overall cap on 
borrowing remains the same, at $23,000 for a dependent 
undergraduate. The College Cost Reduction Act does nothing to 
change that cap because the HELP Committee decided--correctly 
in my view--that the bulk of savings we could achieve should be 
put back into Pell grants that students do not have to pay 
back.
    With the price tag for 4 years of college at $120,000 for 
private schools and $50,000 for public schools, there is 
obviously a big gap remaining for many students. That gap gets 
filled in many ways--savings, work, grants, PLUS loans, you 
name it. But in a disturbing trend more and more students are 
turning to credit cards and high-cost private loans.
    And that brings me back to private loans. According to 
testimony before the Banking Committee in June of last year, 
Sallie Mae reported issuing $7 billion in private loans and $15 
billion in Federal loans last year. One in every three loan 
dollars originated by the biggest student lender in the country 
was a private loan. Though the private loan market has cooled 
recently due in large part to the credit crunch, with tuition 
and fees continuing to rise and Federal aid stagnant, the trend 
is likely to continue.
    As this chart indicates, the private loan program may well 
outstrip the Federal program over the next decade. This chart 
shows the growth rates of the two programs over the past 
several years to predict how large they will grow if current 
trends continue. As you can see, private loans may well be on a 
par with the Federal loan program by the end of the 5-year 
reauthorization Congress is currently considering.
    Congress very often legislates through the rear-view 
mirror. We wait until a problem becomes close to unmanageable 
before we feel compelled to act. This hearing is an attempt to 
shine the light on a problem before it becomes unmanageable.
    I have introduced a bill that would create an alternative 
to private loans. It would create a supplemental loan program 
that would be run by the Federal Government and would operate 
similarly to the Direct Loan program for unsubsidized Stafford 
and PLUS loan programs that are saving the government money. I 
intend to pursue this option and continue to work with Governor 
Strickland and Chancellor Fingerhut to make sure students are 
not burdened with overwhelming, high cost debt.
    We must act because the current marketplace for private 
student loans has two very serious problems. It is not always 
operating in the best interest of students, and the price of 
these loans is just too high. The problem--the tremendous cost 
of these loans--was pointed out in a cover story in a USA Today 
article early last year. That story, reproduced on this chart, 
correctly noted that all of our efforts to remove conflicts of 
interest and back room deals would not help with the incredible 
interest rates that these loans carry. Referring to our efforts 
to better police the market, the authors write that: ``These 
efforts would do little to rein in the fastest-growing area of 
the market: loans that aren't federally backed, whose rates can 
generally rise without limit.'' The story goes on to quote 
David Hartung, with the credit rating agency DBRS: ``Enrollment 
continues to go up, and tuition continues to skyrocket while 
federal loan limits remain low. That's the perfect storm for 
the continued growth of private loans.''
    How students weather that storm is up to us. We can decide 
that students in our country, like the young students that will 
give testimony today, should no longer face such crippling 
debt. We have the opportunity to act now to ensure that Ohio's 
students are not discouraged from attending college and are 
equipped with the skills to compete in the global economy and 
fill the jobs of the 21st Century. I look forward to the 
panels' testimony and commit to working with all of you to make 
college accessible and affordable for all students.
    Senator Brown. Barmak Nassirian is Associate Executive 
Director of External Relations of the American Association of 
Collegiate Registrars and Admissions Officers (AACRAO). Barmak 
Nassirian has served as Associate Executive Director of the 
American Association since 1998. AACRAO is a nonprofit 
association of more than 2,300 institutions of higher 
education, and over 9,000 campus enrollment services officials. 
Barmak has been active in higher education policy for more than 
a decade, focusing on higher education finance, privacy issues 
and Federal regulations.
    Mr. Nassirian came from Washington, thank you for coming 
out here.
    Donald Kohne is a Managing Director of Student Lending 
Works from Westchester, OH, in the Cincinnati area.
    Thank you for coming up from Cincinnati, Mr. Kohne.
    Mr. Kohne. No problem.
    Senator Brown. He has over 31 years of business experience, 
he's the managing director, currently, of Student Lending 
Works, Inc. and Knowledge Funding of Ohio. In these capacities, 
he has day-to-day responsibilities for the overall management 
of the two companies, he's also a partner in the financial 
advisory and consulting firm of Liscarnin Solutions, Inc. Prior 
to his assuming his current responsibilities, he was the Senior 
Vice President of the Student Loan Funding Corporation, the 
Pennsylvania Higher Education Assistance Agency over a 10-year 
period. Prior to earning the education in financing and 
business, he was employed by Coopers and Lybrand, now 
PricewaterhouseCoopers, for 11 years. He's a CPA and has an MBA 
and a BA from the University of Cincinnati.
    Tally Hart has served students seeking access to higher 
education throughout her career. Welcome. Her current position 
is Senior Advisor for Economic Access at Ohio State, and she 
focuses on projects in research to encourage more needy 
students in fourth to tenth grade, to take the right steps to 
go to college, and to help more needy undergraduates to go to 
graduate or professional programs.
    I would just interrupt myself for a moment and say the more 
I talk to community colleges, 4-year schools, private/public, 
anybody in this business, the more they emphasize what you're 
doing, and how important that is that we go into the lower 
grades. We teach them how to apply to college, but we don't 
teach them how to succeed in college, and thank you for that.
    She currently serves on the Student Access and Success 
Coordinating Council of Ohio, the National College Access Board 
of Advisors, and the Advisory Panel, the Center for Student 
opportunity. She was co-founder of College Goal Sunday that now 
provides support to families in more than 30 States. She's led 
research on student aid's role in retention, and developed 
financial literacy programs for OSU students that have served 
as a model for other colleges and universities, as well. 
Something, obviously, very important.
    Debra Van Camp, OSU student from Lancaster, OH. Debra was 
appointed as a student trustee by Governor Strickland for a 2-
year term beginning May 31, 2007. Debra is currently pursuing a 
B.S. in Food Science and Nutrition, with a minor in 
Agricultural Business at Ohio State University. She serves on 
the Academic and Student Affairs Committee, and the Ag Affairs 
Committee.
    Since enrolling 3 years ago, Debra's become involved in 
undergraduate research, and participated in a 5-week study 
abroad in Beijing. As part of her work with the Access 
Initiative, she's created a Student Board of Directors to serve 
as the student voice of the Office. She was elected as a 
Senator to represent students living off-campus during her 
junior year.
    Melissa Miller, Melissa, welcome.
    Ms. Miller. Thank you.
    Senator Brown. She is a Cincinnati, OH native, former 
student who attended OU, and the Brooks Institute of 
Photography in Santa Barbara, CA. Prior to attending school, 
Melissa worked as a travel photographer from 1999 to 2003, and 
taught a class in winter outdoor sports in Portland, OR. She's 
currently working as a freelance photographer, and resides in 
Cincinnati with her family.
    Welcome to this hearing, and welcome back to Ohio.
    Ms. Miller. Thank you.
    Senator Brown. So, Mr. Nassirian, why don't you begin? Or, 
should I start with the--OK, reverse the order?
    Go ahead, why don't you start, Ms. Miller?
    Are you ready to go?
    Ms. Miller. Where do I start?
    Senator Brown. Just read your testimony. All five of you 
will do your testimony and then I will begin the questions of 
all of you.

  STATEMENT OF MELISSA MILLER, FORMER STUDENT, CINCINNATI, OH

    Ms. Miller. OK. My situation was, I was the only individual 
in my family to go to college, and I basically funded all of my 
own education, with the assistance of loans--both Federal 
subsidized and unsubsidized.
    I went to OU for 2 years, but the problems actually started 
when I took out what I thought were Federal loans at Brooks 
Institute, which is a private school in southern California.
    When you go to sign up for these loans, like any student, 
who needs assistance, you pretty much kind of grab at whatever 
you can get, but there's a lot of manipulation, I think, for 
students when they go in for a loan, not really knowing what 
they're signing.
    I was told that most of my loans, I could marry them with 
my Federal loans, but Sallie Mae basically is a private 
corporation whereby, they give loans to people under the 
pretense that they're educational loans, but they're actually 
private loans, so the interest rates are not capped, and 
they're not mandated by pretty much anyone.
    The sad thing about situations like that is when you get 
out of school and your repayments start, instead of your 
interest rates being 2, 3, 4 percent, mine is at 18.
    Roughly a year of school at Brooks Institute is about 
$30,000--and mind you, this is a photography school, this is 
not, you know, a school where you're going to be a neurologist, 
it's basically an art. Whatever you're going to do with your 
skill, you're going to have to basically do it on your own.
    Brooks placement--they tend to say that they have a 
placement rate in the job force of 98 percent, which is 
completely a lie. Everything about the school, and Sallie Mae, 
is a lie, and I think I've come all this way to just basically 
help represent students who don't have a lot of access to 
either moneys from the family, or on their own access, to just 
help bring attention to what Sallie Mae does, and students who 
go under the pretense that these are Federal loans, they 
actually are not.
    It can be horrifying--I could give you a list of friends 
and co-workers who actually have gone through the Brooks 
Institute, and I mean, these kids are coming out $100,000 in 
debt, and in all, owing $350,000 on a $100,000 loan, because 
they didn't understand that these can really vary, anywhere 
from 18 to 25 percent, on an educational loan.
    It's devastating for students to come to a situation under 
the pretense that you're thinking these are Federal loans, 
because the repayment is obviously going to be devastating on 
any financial circumstance, at that point.
    With my circumstance, I'm a freelance photographer, so the 
financial stresses on that are absurd. Plus, Sallie Mae will 
not work with you, when it comes down to--it's awfully 
convenient, for 2 years, I kept getting consolidation things in 
the mail, and you can't really consolidate them. I kept trying 
to call Sallie Mae, I said, ``I don't understand, you know, how 
do I consolidate these? '' Well, when you start talking to them 
it's, ``Oh, no, this is a private loan, you can't consolidate 
it.''
    It gets very complicated, and Sallie Mae, and themselves, 
they will harass you--endlessly calling you or--most people 
forebear their loans for basically as long as they possibly 
can, because they can't afford to pay them back, so--I could 
probably go on for hours about Sallie Mae, but I won't bore you 
with it.
    I just wanted to bring some attention to the fact that 
students loans are completely out of hand.
    [The prepared statement of Ms. Miller follows:]
                  Prepared Statement of Melissa Miller
    Basically it started when I decided to go to Brooks Institute of 
Photography in Santa Barbara, California in the fall of 2003. I was 
admitted into the school for that school year. Needing financial 
assistance I approached the financial aid office for applications for 
loans. I applied for assistance through Sallie Mae. It was the only 
option I was given. I asked if I could marry the loans to my other 
existing Federal loans when I got out of school (I also attended Ohio 
University from 1997-99) and I was told that I could. Only to find out 
that is untrue. Sallie Mae loans are private loans--which I was not 
informed of--and not only are they private loans, my interest rate is 
18 percent.
    I could only afford less then 1 year of school at Brooks. Now that 
I'm out of school I have attempted to contact Sallie Mae consistently 
in order to obtain information on my loans regarding refinancing--
working out a lower payment (they want almost $700 a month on a $21,000 
loan) or simply someone to discuss my options with. Awfully convenient 
that Sallie Mae is nearly impossible to contact but somehow the day my 
school loans went into repayment, the harassment started. Rude phone 
calls from Sallie Mae and it's workers. I am willing to repay my debt. 
I understand my financial obligation but, Sallie Mae WILL NOT help me 
find a solution.
    I guess my situation now is what do I do? I am the only child in my 
family to go to college, or attempt to go to college, and I am left 
with no options with painstaking consequences for a higher education. 
Rumor has it that Sallie Mae can garnish your wages, so what am I going 
to do from here? Over 30 years of paying off a $21,000.00 loan through 
Sallie Mae at 18 percent comes out to be almost $110,000.00 according 
to Sallie Mae calculations. How can that be? For less than a half year 
of education. It's absurd and a disgrace that women and men alike are 
dealing with these types of issues when merely attempting to better 
themselves in a system that is obviously failing us.

    Senator Brown. Thank you. Thanks, Ms. Miller, and I will 
come back to you with questions.
    Ms. Van Camp.

             STATEMENT OF DEBRA VAN CAMP, STUDENT, 
              OHIO STATE UNIVERSITY, COLUMBUS, OH

    Ms. Van Camp. My name is Debra Van Camp.
    Senator Brown. Bring the microphone closer?
    Ms. Van Camp. Sure.
    I'm a junior at Ohio State, and I'm pursuing a dual degree, 
my minor has actually turned into a double major--I'm in Food 
Science and Nutrition, Agri Business, and Applied Economics. I 
thank you, Senator, for hosting this hearing today.
    I just want to comment that I think it's very appropriate 
that you've chosen to host it at Ohio State, because I think 
that this University truly epitomizes the values of the 1862 
Morrill Act under which it was founded, which is to establish--
it was established to provide quality postsecondary education 
that would be ``accessible to all.''
    I believe it's also extremely timely that we're meeting at 
this critical point in higher education and our country's 
history. When the Morrill Act was passed in 1862, the United 
States was engaged--as I'm sure most of you know--in a civil 
war. Our country's leaders chose to make higher education a 
priority, because they knew it would move the country forward.
    Today, we find ourselves, again, engaged in a very divisive 
war, and operating as you said, Senator Brown, in a very 
competitive global environment. Now, once again, the Nation's 
leaders have a choice of what priority to give higher 
education.
    This morning, I'd like to illustrate how Federal support of 
higher education can truly make a difference in our economic 
future by just sharing some of my own personal experiences.
    In the Spring of 2005, I was the first-ever Fairfield Land-
Grant Scholarship recipient. The Land-Grant Scholarship is a 
scholarship through Ohio State University that gives one full-
ride scholarship to at least one resident in each of Ohio's 88 
counties, on the basis of academic merit and high financial 
need.
    I'll never forget the day that I opened my award letter 
from Ohio State, and felt as though an enormous burden had been 
lifted off my shoulders. You have to understand, at that time, 
I was living with my high school Agricultural Education 
teachers--Rich and Cindy Brill--who are, coincidentally, both 
Ohio State graduates, and they had become incredible mentors to 
me after my family went through a very complicated divorce my 
junior year.
    I knew when I was awarded the Land-Grant Scholarship, I had 
been given a tremendous opportunity which I would not take for 
granted.
    During my first year of college, I took advantage of every 
chance to get involved. I started working as the Student 
Assistant in the Food Science Lab through the Land-Grant Work 
Study Program, I became very active in undergraduate student 
government, and as time went by, I found myself worrying less 
and less about money, and beginning to consider opportunities 
that I never would have dreamed would be possible when I 
applied at Ohio State University.
    By winter quarter my freshman year, I made the most 
adventurous decision of my life, and applied to a study-abroad 
program to China. I'm sure many of you in this room are very 
extensively traveled, but I'd never been outside of the 
country, so this was huge for me.
    It was truly a life-changing experience, and I remember 
when I came home that summer I felt as though there were no 
opportunities beyond reach.
    The next fall, I became involved in undergraduate research 
and began a new job as a student assistant in the newly created 
Economic Access Initiative, working with Tally Hart and Laurie 
Crass, who I believe is in the audience.
    I'll never forget the first time I met with Tally, and she 
told me about the research which has shown that the most 
qualified students from the lowest income quartile attend 
college at a much lesser rate than the least qualified students 
from the highest income quartile. I was, and continue to be, 
outraged by this fact.
    I worked with Tally and Laurie to establish a Student 
Advisory Group to identify more than 400 first-generation 
college graduates among the faculty at Ohio State, and to begin 
spreading the college access message.
    I'm still very much involved with the Access Initiative, 
although not as a student worker. I continue to serve as a 
strong advocate for educational access. Former OSU football 
coach Woody Hayes--I'm sure, Senator Brown, you've heard this 
quote before--said, ``You can never really give back, but you 
can always pay forward.''
    I've found my own way to pay forward the opportunities I've 
been given by serving other disadvantaged students. This fall, 
with the support of a dedicated group of students across 
campus, I founded a new student organization called Students 
for Equal Access. Our mission is to serve as informed advocates 
for equal access to higher education, and to create a society 
that allows all qualified students an equal opportunity to 
pursue higher education, regardless of income level or 
background.
    We serve two primary functions. First, we promote and 
present information about college access to other student 
organizations and groups in the community, and second, we 
facilitate college visit programs for grade-school students. We 
know from research that students can be powerful influences in 
convincing younger students that they can, in fact, attend 
college, and we are working diligently to amplify this message.
    As I reflect back on the many opportunities I have been 
able to take advantage of during my undergraduate career--
including studying abroad, conducting research, serving on the 
Board of Trustees, creating a new student organization--I 
realize that none of these opportunities would have been 
possible without the support of the Land-Grant Scholarship.
    Ultimately, my story illustrates, I think, two fundamental 
and important outcomes of financial aid. When you open the door 
for students to education, first you're helping that individual 
student to achieve success. Second, and more importantly, 
you're empowering that student to be able to pay forward in 
society.
    Additionally, I believe my story amplifies two critical 
issues of critical importance, which I would request this 
committee would support in the future. First, is the idea to, 
please, insist on educational quality. It is critical that 
qualified students from all backgrounds have access to a 
quality educational experience. This includes access to 
opportunities such as research, study abroad, and student 
involvement. I'm sure many students would share that some of 
their most defining educational experiences occurred outside of 
the classroom--perhaps in the lab, in a student organization, 
or in another country. Your assurance that students have access 
to funds that they need for college--whether it be through Pell 
grants, as you mentioned, or through affordable loan options--
is critical to ensuring that students have the experiences they 
need.
    I would just like to add that, for me, personally, having 
those experiences greatly impacted my decision to go into a 
career in public service, which I'm now pursuing. I know that's 
an option that I never would have considered, if I had been 
worrying about money.
    Additionally, your support of national research 
foundations, such as the National Institutes of Health, the 
National Science Foundation, are critical to ensuring quality 
access opportunities for all students. These Federal grant 
moneys that faculty receive do not only fund cutting-edge 
research, but also create many valuable opportunities for 
graduate, and undergraduate students.
    The second critical issue that I would like to share with 
you, is it's vital to value diverse educational programs. As 
I've shared in my story, it was my high school Agricultural 
Education program that had a huge impact on my decision to 
attend college. However, I know from some of my peers, it was 
an art or music program that kept them in school, and 
encouraged them to go on to college. I cannot tell you how 
valuable these co-curricular programs are for reaching urban 
and rural students who are attending college at much lesser 
rates than their suburban peers.
    Unfortunately, in struggling school districts, these are 
often the programs to first be cut, compounding the barriers to 
educational access. I've seen this firsthand, as I just found 
out--last Friday, actually--my three-teacher Agricultural 
Education Program that I graduated from has been reduced to 
just one teacher.
    It's important to recognize and support creativity and 
diversity in education, and realize that a standardized, 
cookie-cutter approach, is not the best way to increase 
educational access.
    I believe many students at Ohio State and across the 
country--including myself--would share the sentiments of 
Abraham Lincoln, who said, ``I view education as the most 
important subject that we, as a people, can be engaged in.'' I 
believe there's no investment that the Federal Government can 
make that will have a higher rate of return than education. 
Providing the equal access to quality education is the most 
fundamental key in solving many--if not all--of the problems 
facing our society, including job loss, poverty, and building a 
more prosperous economic future, just as you mentioned.
    Senator, I thank you and the committee for your service and 
dedication to students, and our country's future. I'd be glad 
to respond to any questions you may have.
    [The prepared statement of Ms. Van Camp follows:]
                  Prepared Statement of Debra Van Camp
    My name is Debra Van Camp, and I am a junior at Ohio State pursuing 
a dual degree in Food Science and Nutrition and Agribusiness and 
Applied Economics. I thank you for the opportunity to offer a student 
perspective at this hearing. I think it is appropriate that you have 
chosen to host a hearing on the topic of educational access at Ohio 
State, because this University truly epitomizes the values of the 1862 
Morrill Act under which it was established to provide quality 
postsecondary education that would be ``accessible to all.'' I also 
believe our meeting is extremely timely as we are at a critical point 
in higher education and our country's history. When the Morrill Act 
passed in 1862 the United States was engaged in a divisive civil war, 
but our leaders chose to make higher education a priority because they 
knew it was an essential step to moving the country forward. Today, as 
a country, we find ourselves again engaged in a divisive war and 
operating in a very competitive global economy. Now once again the 
Nation's leaders have the choice of what priority to give higher 
education. This morning I would like to illustrate that Federal support 
of education is the most fundamental key to our economic future by 
sharing my own personal experiences.
    In the spring of 2005, I became the first-ever Fairfield County 
Land Grant Scholarship recipient. The Ohio State Land Grant Scholarship 
Program provides a full scholarship to at least one student in each of 
Ohio's 88 counties on the basis of academic merit and high financial 
need. I will never forget the day I opened my award letter from Ohio 
State and felt an enormous burden being lifted from my shoulders as I 
read that all of my college expenses would be covered. At the time I 
was living with my high school agriculture education teachers, Rich and 
Cyndi Brill, who are coincidentally both Ohio State graduates. They had 
become incredible mentors to me after my family went through a very 
complicated divorce my junior year. I knew when I was awarded the Land 
Grant Scholarship I had been given a tremendous opportunity, which I 
would not take for granted.
    During my first year of college I took advantage of every chance to 
get involved. I started working as a student assistant in the Food 
Science Lab through the Land Grant Work-Study Program, and I became 
very active in Undergraduate Student Government. As time went by I 
found myself worrying less and less about money and beginning to 
consider opportunities that I never would have dreamed were feasible 
when I applied to Ohio State. By winter quarter my freshman year I made 
the most adventurous decision of my life thus far when I applied to 
study abroad in China during the upcoming summer! It was truly a life-
changing experience, and after I came home that summer I felt as though 
there was no opportunity beyond reach.
    The next fall I became involved in undergraduate research and began 
a new job as a student assistant in the newly created Economic Access 
Initiative, working with Tally Hart and Laura Kraus. I will never 
forget the first time I met with Tally and she told me about the 
research which had shown that the most qualified students in the lowest 
income quartile attend college at a much lesser rate than the least 
qualified students in the highest income quartile. I was, and continue 
to be, outraged by this fact! I worked with Tally and Laura to 
establish a student advisory group and to identify more than 400 first-
generation college graduates among the faculty at Ohio State to begin 
spreading the college access message.
    I am still very much involved with the Economic Access Initiative, 
although not as a student worker. I continue to serve as a strong 
advocate of educational access. Former OSU football coach Woody Hayes 
said, ``You can never really give back, but you can always pay 
forward,'' and I have found my own way to ``pay forward'' the 
opportunities I have been given by serving other disadvantaged 
students. This fall, with the support of a dedicated group of students 
from across campus, I founded a new student organization called 
Students for Equal Access. Our mission is to serve as informed 
advocates for equal access to higher education and to create a society 
that allows all qualified students an equal opportunity to pursue 
higher education regardless of income level or background. We serve two 
primary functions. First, we present and promote information about 
college access to both student groups and the community, and second, we 
facilitate college visit programs for grade school students. We know 
from research that college students can be powerful influences in 
convincing younger students that they can attend college, and we are 
working diligently to amplify this message.
    As I reflect back on all the many opportunities I have been able to 
take advantage of during my undergraduate career, including studying 
abroad, conducting research, serving on the Board of Trustees, and 
creating a new student organization, I realize that all of these 
opportunities would not have been possible without the support of the 
Land Grant Scholarship. Ultimately my story illustrates two fundamental 
and important outcomes of financial aid: when you open the door of 
education first, you are helping the individual student to achieve 
success. Secondly, and more importantly, you are empowering that 
student to pay forward in society.
    Additionally, I believe my story exemplifies two issues of critical 
importance, which I request this committee support in the future. 
First, it is important to insist on quality. It is critical that 
qualified students from all backgrounds have access to a quality 
educational experience. This includes access to opportunities such as 
research, study abroad, and student involvement. I am sure many 
students would share that some of their most defining educational 
experiences occurred outside the classroom--perhaps in the lab, in a 
student organization, or in another country. Your assurance that 
students have access to the funds they need for college, as well as 
your support of national research foundations, such as the National 
Institutes of Health and the National Science Foundation, is critical 
to providing these opportunities. The Federal grant monies that faculty 
receive not only fund cutting edge research, but also create many 
valuable opportunities for graduate and undergraduate students.
    Secondly, it is vital to value diverse educational programs. As I 
have shared in my story, it was my high school agricultural education 
program that had a huge impact on my decision to attend college. I know 
for some of my peers it was an art or music program that kept them in 
school and encouraged them to go on to college. I cannot tell you how 
valuable these co-curricular programs are for reaching urban and rural 
students who are attending college at much lesser rates than their 
suburban peers. Unfortunately, in struggling school districts these are 
often the first programs to be cut, compounding the barriers to 
educational access. I have seen this first hand as the three teacher 
agricultural education program at my former high school has been 
reduced to just one teacher. It is important to recognize and support 
creativity and diversity in education and realize that a standardized, 
cookie-cutter approach is not the best way to increase educational 
access.
    I believe many students at Ohio State and across the country, 
including myself, share the sentiments of Abraham Lincoln, who said, 
``I view education as the most important subject which we as a people 
can be engaged in.'' I believe that there is no other investment that 
the Federal Government can make that will have a higher rate of return 
than education. Providing equal access to quality education is the most 
fundamental key in solving many, if not all, of the problems facing our 
society including issues such as job loss, poverty, and building a more 
prosperous economic future.
    Senator, I thank you and the committee for your service and 
dedication to students and our country's future. I would be glad to 
respond to questions about these comments or any other issues of 
interest to you and the committee.

    Senator Brown. Thank you for that.
    The Woody Hayes quote, my daughter used that exact quote 
when she spoke to her high school graduation class many years 
ago.
    Ms. Van Camp. It's a great quote.
    Senator Brown. Ms. Hart. Thank you for joining us.

   STATEMENT OF NATALA K. HART, SENIOR ADVISOR FOR ECONOMIC 
          ACCESS, OHIO STATE UNIVERSITY, COLUMBUS, OH

    Ms. Hart. Senator and members of the HELP Committee, my 
name is Tally Hart, I am the Senior Advisor for Economic 
Access, here at Ohio State University.
    I applaud your effort to hold this hearing at a time that 
action is needed to assure our citizens of the Federal 
commitment to postsecondary education, especially to access 
into even an institution as large as Ohio State.
    We're committed, as Debra has already said, to our Land-
Grant tradition of educating students of all income levels. 
We'll continue to devote significant institutional resources to 
secure the education of needy students. A strong and clear 
Federal commitment is also urgently needed, particularly to 
support continued availability of student loans.
    Student loans are crucial to the foundation of our 
country's economic success. I ask your action in three ways to 
assure that that educational opportunity continues.
    First, to encourage legislation that will provide a 
certainty that financial aid will continue, and student loans 
will continue, despite the challenges in the banking industry.
    Second, to increase loan limits and funding for Perkins 
Loans, so that needy students may be assured of adequate 
financing, without relying on higher interest private loans, 
and credit cards.
    And third, to provide support for growth in direct lending, 
so that increased participation in that program does not reduce 
service to students who are already part of the program.
    To my first point, there's historic evidence that when 
student aid reductions are even discussed, students believe 
that aid is not available, and opt out of college. This 
occurred in 1982, following the proposal by President Reagan to 
totally dismantle Federal student financial aid. It occurred 
again in 1986, when limits were placed on student loans.
    Students said then, as they say now, ``A student aid cut 
never heals.'' I provided some charts to your staff that show 
that over those years, even though Congress continued to 
support student financial aid, students stopped going to 
college. As you would suspect, it was not high-income students 
who stopped going to college, but rather, middle- and low-
income students.
    I find it very paradoxical that information about the 
availability of student aid is difficult to disseminate to 
needy students, but even the possibility of lack of student aid 
has such a powerful impact in decreasing participation.
    My second point is, we need to increase the Federal student 
loan limits and Perkins Loan funding, so students can have 
sufficient funding without higher loan costs and credit card 
use.
    Included in my testimony is a study funded by the Lumina 
Foundation by Dr. Shoumi Mustafa, who's here with us today, 
that shows improved retention and completion of Pell-eligible 
students when they have sufficient funds, largely through low-
interest loans.

    [Editor's Note: The above referenced study was not 
available for inclusion at time of print.]

    This improvement was accomplished by increased Perkins 
Loans, here at Ohio State, but could have been equally 
accomplished by higher limits on Stafford Loans. Simply put, 
without adequate funding, needy students can not remain to 
pursue their degree at rates comparable to their more affluent 
counterparts.
    Third, we ask your support of the administration of direct 
lending at a level concomitant with the growth in the program. 
Ohio State has long held the view that both FFELP and direct-
lending programs provide what is the best option by producing a 
kind of competition, giving better terms for students in 
institutions, and as you know, Ohio State is the Nation's 
largest direct lending institution, both in terms of number of 
students, and dollars of loan volume.
    This program has been especially important to our talented 
professional students, here at the Moritz College of Law. Our 
law students begin each year earlier than other programs, and 
would be especially hard-hit if administrative support of 
direct lending delayed their student loans. We encourage your 
increase to USED to provide the administrative support for 
these critical loans.
    Another aspect of Ohio State's extraordinary commitment to 
access for low-income and first-generation students, is 
reflected in the formation of the office where I serve. It 
helps assure that Ohioans have information and research in 
programs to guide the steps to go to college.
    Over the past decade, Ohio State has achieved what may be 
the gold standard in closing college gaps in the rate of 
enrollment, and rate of graduation between low-income and high-
income students. Having closed the gap between those rates was 
not sufficient to achieve the goals as a land-grant 
institution, and as you heard President Gee describe us, the 
institution of the American Dream.
    Our office was created to increase the rate of low-income 
students going onto college in Ohio, anywhere, and then to 
increase the rate of first-generation Ohio students who go onto 
graduate and professional programs.
    I'd like to tell you, rather than about the programs, about 
some of the students who are products of those efforts. You've 
already heard from Deb Van Camp, who is an outstanding example 
of those efforts. A student we work with, Katie Newman, is both 
a Mount Leadership Scholarship Student, and another Land-Grant 
Opportunity Scholar. Coming from a small southern farm, Katie 
represents our outreach to rural, as well as urban and suburban 
students, to identify the best and brightest, and assure them 
an Ohio State education.
    Semaki Corfias is also a first-generation college student, 
and a Land-Grant Scholar. He's been a leader in creating a 
student-based vision for access at Ohio State. You may 
recognize him from the recent Ohio State Alumni magazine, that 
includes a number of our 450 faculty members who serve as role 
models, because they, too, were the first in their family to 
graduate from college.
    I know she's in the audience, I'll ask Sanja Shaw to stand 
up, if she would. Sanja was admitted to undergraduate study 
that will lead directly onto medical school, arguably our most 
competitive entering program. Along the way, Sanja participated 
in an honors Social Justice emerging program, studying and 
doing community service related to access. Sanja has 
voluntarily extended that commitment, and is now working on an 
access program designed to work through pediatricians that 
serve low-income areas, and reach low-income students.
    We have a number of other students who have continued in 
similar programs, already paying forward, to use Debra's term. 
We have a major goal at Ohio State that all--this is a big 
goal--that all OSU students who engage in any kind of community 
service, go out to their community service prepared to learn 
about access, and carry messages of college access to the 
children and families they encounter while they're doing that 
community service.
    You know we're a big campus. You may not know that nearly 
10,000 students engage in community service while attending 
Ohio State, and we've recently been recognized on the national 
level for an honor roll for community service. Imagine the 
power of those students, not only doing their community 
service, but also assuring students and children that they 
reach to have someone to talk to them about college and college 
being possible.
    We're working with our partnerships in various 
professionals, the trio programs, financial aid professionals, 
and the College Access Network, represented here today with Dr. 
Reginald Wilkinson. This will be a major effort within the 
entire Ohio State community, by our students, providing that 
kind of access message.
    Information from efforts like the Economic Access 
Initiative is essential, but would be one hand clapping without 
student financial aid.
    Senator, we appreciate the support you've provided to 
students, through student financial aid, and again, thank you 
for being here on campus not only to hear about, but to also 
see our students, and understand the enormous positive impact 
investment in them will have on our Nation's future.
    I'd be glad to respond to questions later, thank you.
    [The prepared statement of Ms. Hart follows:]
                  Prepared Statement of Natala K. Hart
    Senator Brown and Members of the U.S. Senate Committee on Health, 
Education, Labor, and Pensions, my name is Natala K. (Tally) Hart. I am 
the Senior Advisor for Economic Access at The Ohio State University. I 
applaud your effort to hold this hearing at a time action is needed to 
assure our citizens of the Federal commitment to postsecondary access 
and at the Nation's largest institution. We, at Ohio State, stand 
committed to our Land Grant tradition of educating students of all 
income levels. We will continue to devote significant institutional 
resources to secure the education of needy students, a strong and clear 
Federal commitment is also urgently needed, particularly to support the 
continued availability of student loans.
    Student loans are crucial to educational opportunity that is the 
foundation of our country's future economic success. I ask your action 
in three ways to assure that educational opportunity continues:

    1. Encourage legislation that will provide a certainty that 
financial aid will continue despite the challenges in banking and 
student loans.
    2. Increase loan limits and funding for Perkins Loans so needy 
students may be assured of adequate financing without relying on higher 
interest loans and credit cards.
    3. Provide support for the growth in Direct Lending so that 
increased participation in that program does not reduce service to 
students.

    To my first point: There is historic evidence that when student aid 
reductions are even discussed, students believe that aid is not 
available and opt out of college. This occurred in 1982 following the 
proposal by President Reagan to totally dismantle Federal student 
financial aid. As students said then, a student aid cut never heals. 
The charts show that it heals, but over years and at the loss of many 
talented students required by the national economy. It is paradoxical 
that information about the availability of student aid is so difficult 
to convey, but lack of student aid--even as a possibility--causes 
dramatic decreases in participation.
    Second, increase loan limits and Perkins Loan funding so students 
can have sufficient funding without higher interest loans and/or credit 
card use. Also included in my testimony is a study funded by the Lumina 
Foundation, by Dr. Shoumi Mustafa, also here today, that shows improved 
retention and completion of Pell eligible students when they have 
sufficient funds. This improvement was accomplished through use of 
increased Perkins Loans but could also be accomplished with higher loan 
limits on Stafford Loans. Simply put, without adequate funding, needy 
students cannot remain to pursue their degrees at rates comparable to 
their more affluent counterparts.
    Third, we ask that you provide support to the administration of the 
Direct Lending Program at a level at least concomitant to the growth in 
that program. We have long held the view that both FFELP and Direct 
Lending provide what is needed for the best options for students and 
institutions. As you know, Ohio State is the Nation's largest Direct 
Lending school both by number of students and dollar loan volume. This 
program has been especially important to our talented professional 
students here at the Moritz College of Law. Our law students begin each 
year earlier than programs and would be especially hard hit if the 
administrative support of Direct Lending delays their student loans.
    Another aspect of Ohio State's extraordinary commitment to access 
for low income and first generation students is reflected in the 
formation of our Economic Access Initiative to assure that Ohioans have 
information, research, and programs to guide the way to the steps to 
college. Over the past decade, Ohio State has achieved what may be the 
gold standard in closing gaps in the rate of enrollment and rate of 
graduation between low and high income students. Having closed the gap 
between rates for low-income students was not sufficient for Ohio 
State's goals as the Land Grant institution and, as President Gee 
describes us, the institution of the American Dream. The Economic 
Access Initiative was created to increase the rate of low-income 
students going to college in Ohio and to increase the rate that first 
generation Ohio State students going on to graduate or professional 
programs.
    Rather than describe the programs, I'd like to tell you about the 
students who are products of Ohio State's efforts. You'll also hear 
from Deb Van Camp, another outstanding example of these efforts.
    Katie Newman is both a Mount Leadership student and a Land Grant 
Opportunity Scholar. Coming from a small southern farm, Katie 
represents our outreach to rural as well as urban areas to identify the 
best and brightest and assure them an Ohio State education.
    Semaki Corfias is also a first generation college student and also 
a Land Grant scholar from a farm background; he has been a leader in 
creating a student-based vision for access at Ohio State. You may 
recognize him as the cover person on the most recent edition of Alumni 
Magazine that includes a few of our more than 450 faculty members who 
serve as role models since they, too, were the first in their families 
to graduate from college.
    Sanjna Shah is a MedPath Scholar, admitted to undergraduate study 
going directly on to Ohio State's College of Medicine. Along the way, 
Sanjna participated in an Honors Social Justice Immersion Program 
studying and doing community service related to access. Sanjna has 
voluntarily extended that commitment and is working on an access 
program for pediatricians serving low-income children.
    Amy Wade, both a colleague and Ph.D. candidate, has just begun 
Blueprint College, a 6-week program for 4th and 5th graders' parents 
from five Columbus City Schools with highest rates of free lunch 
recipients. The program will teach parents about college going and help 
us research what they need to know. Amy Baumgartner is part of the 
student corps in Blueprint College and will provide similar interactive 
lessons to 4th and 5th graders of those parents.
    Patty Cunningham is working with us in her leadership class for 
African-
American males, studying, among other issues, what helped them come to 
college and what deterred their friends who did not go to college. Our 
partnership includes the Todd Bell Center for the Study of the African-
American Male.
    We are also working on a major goal: having all OSU students who 
engage in community service prepared to learn about and carry messages 
of college access to the children and families they encounter while 
doing community service. You know we are a big campus; you may not know 
that nearly 10,000 students engage in community service while attending 
Ohio State. We've been recognized at the Federal level on the Honor 
Role for Community Service. Imagine the power of those students not 
only doing their community service, but also assuring children with no 
one to talk about college that college is possible for them. We're 
working with partnerships with the TRIO professionals, financial aid 
professionals, and the Ohio College Access Network, represented here 
with us today by Dr. Reginald Wilkinson.
    Information from efforts such as the Economic Access Initiative is 
essential, but would be one hand clapping without student financial 
aid.
    Senator, we sincerely appreciate the support you have provided to 
students through student financial aid. Thank you for being here on 
campus to not only hear about but, also see our students and understand 
the enormous positive impact an investment in them will have on our 
Nation's future.
    I would of course be glad to respond to questions about these 
suggestions and any other issues of interest to you and the committee.

    Senator Brown. Thank you very much, Ms. Hart.
    I like the statement you made--how did you say it? A 
student aid cut never heals?
    Mr. Kohne, thank you for joining us.

  STATEMENT OF DON KOHNE, MANAGING DIRECTOR, STUDENT LENDING 
                     WORKS, CINCINNATI, OH

    Mr. Kohne. Good morning, Senator, and thank you for having 
me here today.
    As you said, I am Donald Kohne, Managing Director of 
Student Lending Works, based in Cincinnati, OH. We are the 
State of Ohio's designated nonprofit student loan lender. Our 
public purposes mission is to help Ohioans afford a higher 
education. By utilizing our partnership with the State, our 
nonprofit status, and our access to tax-exempt funding, we 
offer the lowest cost loans of any lender in Ohio.
    We are a subsidiary of Knowledge Works Foundation, Ohio's 
leading philanthropic education foundation, which has invested 
more than $100 million into transforming Ohio's education 
system.
    In my over 20 years in working in the FFELP, I have never 
seen a more challenging time for the program. The primary 
challenge facing most FFELP lenders is our current inability to 
obtain the financing necessary to make student loans in the 
upcoming academic year.
    Most student loans are financed with debt, either at 
origination or at a later time. The collateral damage caused by 
the sub-prime mortgage crisis has significantly impacted those 
securities backed by federally guaranteed student loans, and 
the capital markets for student loan-backed securities is 
virtually shut down.
    In the first quarter of 2008, and for the first time in 40 
years, no financings for student loans were completed. The 
current State of the student loan capital markets presents a 
crisis on a large scale for students and their families, a 
point made quite clearly by witnesses at a Senate Banking 
Committee hearing last week.
    There are some who claim the crisis does not exist. Let me 
be very clear--this crisis does exist, its effects will be felt 
very soon on college campuses throughout the Nation, as we're 
already seeing lenders exit the market, and/or suspend their 
programs without warning.
    Already, to date, 61 FFELP lenders, representing 14 percent 
of last year's volume, and 21 private lenders have left the 
program or suspended lending for the coming academic year. 
Action must be taken before it's too late.
    The many consequences of this crisis is that many students 
may not have enough funding to pay for school this autumn. As a 
result, colleges will see a drop in attendance, especially 
among those students from lower and middle-income households, 
many of whom are dependent on student loans to cover the cost 
of attendance.
    One could hope that students and parents could turn to 
other sources of funding to fill the tremendous gap opened by a 
lack of FFELP funding, but the truth is that other sources of 
financial aid, namely the Pell grant, other grants and 
scholarships, a feasible expansion of the direct loan program, 
and a reasonable use of private loans, cannot fill this gap.
    What is the solution? All of the ideas you are currently 
reviewing have some merit, and as is often the case, this 
crisis will be solved through an application of multiple 
solutions. We believe the key to any solution is to understand 
that we must focus on the FFELP program, because it is the 
existing channel, and like other options, it does not need to 
be created from scratch, or doubled or tripled in size.
    FFELP is the single-largest source of financial aid for 
students attending college, having provided $57 billion of the 
total $70 billion in Federal student loans made in academic 
year 2006-2007. Making FFELP work is the most critical 
component of an effective solution.
    We need to examine most closely proposals that will 
immediately make the financial markets operational again, for 
the purpose of funding new student loans this autumn.
    Both Chairman Kennedy in the Senate, and Chairman Miller in 
the House, have proposed bills that would expand the Federal 
Direct Loan Program, clarify the authority of the Secretary of 
the Department of Education--considered a funder of last resort 
program--and authorize the Secretary of Education to purchase 
student loans from lenders.
    While all of these ideas have merit, for reasons stated in 
my written testimony, and in our opinion, these options will 
not individually, or collectively, generate the amount of 
capital needed to fund the student loan demand this fall.
    There is, however, a proposal on the table that would 
provide an immediate solution to the funding of new student 
loans for the autumn with little risk to--and no financial 
outlay--by the Federal Government. If the Department of 
Education were provided with temporary authority to enter into 
what we call ``standby loan purchase'' agreements with lender, 
whereby lenders would have the right, and option, to sell to 
the Department a specific amount of loans, at a specific price, 
lenders--armed with this authority--could go to the capital 
markets, and raise the funds necessary to meet the student loan 
needs for the upcoming academic year.
    What's attractive about this proposal is, that it is 
difficult to conceive a set of circumstances where the option 
to sell would actually be exercised. The mere existence of this 
backstop provided by the Department of Education would put a 
floor on the value of the loans, and give investors confidence 
to again purchase student loan securities, and the benefit to 
the Federal Government is that it could charge a reasonable fee 
for providing this service to lenders.
    Standby loan purchase agreement concept is the only option 
proposed so far that we believe has a serious chance of 
injecting enough new capital into the student loan system this 
coming fall. We are pleased that the concept was added to H.R. 
5715, and we encourage the Senate to add this provision to S. 
2815.
    As the State of Ohio's nonprofit student loan lender, our 
primary purposes is to help Ohioans pay for college. We are 
confident that the standby loan purchase agreement concept will 
permit us to fulfill this purpose in the academic year.
    Thank you, and I'm happy to answer any questions.
    [The prepared statement of Mr. Kohne follows:]
                 Prepared Statement of Donald J. Kohne
    Good Morning, Mr. Chairman, I am Donald Kohne, Managing Director of 
Student Lending Works based in West Chester, OH. We are the State of 
Ohio's designated nonprofit student loan lender. Our public purpose 
mission is to help Ohioans access and afford a higher education. We 
serve as an eligible lender of Federal student loans under the Federal 
Family Education Loan Program (FFELP). By utilizing our partnership 
with the State, our non-profit status, and our access to tax-exempt 
funds, we offer the lowest-cost loans of any lender in Ohio. We are a 
subsidiary of KnowledgeWorks Foundation, Ohio's leading philanthropic 
education foundation, which has invested more than $100 million 
directly into transforming Ohio's education system. We were very 
pleased last summer to welcome Mr. William Jawando, your education 
aide, to our offices and trust he can attest to the much-needed service 
we are providing Ohio's students and families.
    I have been in the nonprofit student loan industry for more than 20 
years and, quite frankly, have never seen so many challenges facing the 
FFELP program at one time. This program serves almost 80 percent of the 
students and parents who need to take out a Federal student loan for 
the purpose of investing in a college education. Together with 
guarantee agencies and the U.S. Department of Education, this program 
is operated by private-sector lenders, many of whom are nonprofit 
agencies like us who are focused on promoting college access and 
affordability in their particular States.
                               the crisis
    The primary challenge facing Student Lending Works and many other 
FFELP lenders concerns our ability to secure the financing necessary to 
make student loans in the upcoming academic year. The subprime mortgage 
crisis is causing collateral damage and significantly impacting those 
securities backed by federally guaranteed student loans. Student loan 
securities have historically been viewed by investors as assets of the 
highest credit quality because the loans supporting the securities are 
97 percent guaranteed by the Federal Government and have low default 
rates. Now, student loan securities are suffering much the same fate as 
other classes of asset-backed securities of much lower credit quality. 
As a result of the sub-prime crisis, the market for student loan-backed 
securities has virtually shut down. In the first quarter of 2008, no 
financings for new student loans were completed. A lack of financing at 
this level hasn't occurred in 40 years and will force many families to 
forgo school or tap into their home equity or retirement plans to pay 
for college.
    I have seen a few financial crises in my career, such as the 
interest rate spikes of the early 1980s, the S&L crisis, and the 
collapse of the junk bond market. This is the first time the student 
loan program and higher education have been so directly impacted. The 
current state of the student loan capital market presents a crisis on a 
large scale for students and their families--a point made quite clearly 
by witnesses at a Senate Banking Committee hearing last week.
    There are some who claim that no crisis exists. Let me be very 
clear. This crisis does exist! Its effects will be felt very soon on 
college campuses throughout the Nation, as we are already seeing 
lenders exit the market and/or suspend their programs without warning. 
Action must be taken before it's too late.
    The main consequence of this crisis is that many students will not 
have enough funding to pay for school this autumn. As a result, 
colleges will see a drop in attendance, especially among those students 
from lower and middle income households, many of whom are dependent on 
student loans to cover the cost of attendance. We all know that taking 
a leave from college drastically increases a student's likelihood of 
not completing their degree.
    Consider this scenario . . . John Smith, a second-year college 
student who worked hard his freshman year to establish a good grade 
point average, has received his financial aid letter and is told he has 
a shortfall of $11,000 between the aid he is receiving and the cost of 
attending his college for the next school year. He had planned to make 
up the difference through Stafford and PLUS loans. The lender he used 
last year is no longer offering loans. He is now forced to find a new 
lender who has funds available. At this point, John and his parents may 
find that there are no lenders available to them because most lenders 
with available funding have already gone through their processes and 
have disbursed their available funds.
    The alternative is that John Smith and many other students may turn 
to private loans to fund their education. The problem is that the 
capital markets for these loans are in far worse shape than the market 
for Federal loans. Many lenders are also leaving the private loan 
market. For those remaining in the market, many parents and students 
will be unable to qualify for their private loans, as many lenders are 
requiring higher credit scores than last year due to the current credit 
crunch. What makes this situation worse is that many students and their 
families depend on the combination of Federal student loans and private 
loans to fund their college education.
    As for other sources of funding, for those borrowers who qualify 
for Pell grants, the recent Pell funding increases are unfortunately 
not nearly enough to allow them to attend school this autumn without 
any borrowing. There simply will not be enough other grant and 
scholarship funding available to help students cover the shortfall that 
will arise from an inability to access student loans. The problem will 
be especially acute on private school campuses where the tuition is 
typically much greater than available grant support.
    The long-term consequences of these funding shortfalls will impact 
State unemployment, hinder the cause of Ohio higher education, and 
damage for years to come the vision of the State to develop a highly 
skilled workforce. Those most impacted will be at-risk and first 
generation college students.
                      options under consideration
    So, what is the solution? All of the ideas you are currently 
reviewing have some merit. As is so often the case, this crisis will be 
solved through the application of multiple solutions. Key to any 
solution is the understanding that we must focus on the FFELP program 
because it is the existing channel--and unlike other options, does not 
need to be created from scratch or doubled or tripled in size. FFELP is 
the single largest source of financial aid for students attending 
college. Making FFELP work is the most critical component of an 
effective solution. We need to examine most closely proposals that will 
immediately make the financial markets operational again for the 
purpose of funding new student loans this autumn.
    Both Chairman Kennedy in the Senate and Chairman Miller in the 
House have proposed bills that would expand the Federal Direct Loan 
Program, clarify the authority of the Secretary of the U.S. Department 
of Education concerning the Lender of Last Resort program, and 
authorize the Secretary of Education to purchase student loans from 
lenders--a process being referred to as the Secondary Market of Last 
Resort. The House last week passed the Miller bill.
    As for the Federal Direct Loan Program, it is not realistic to 
think that this program can be expanded to the degree needed to meet 
the funding shortfall facing FFELP or to meet the service needs of 
students and institutions.
    The Lender of Last Resort Program is a provision of the Higher 
Education Act that has previously existed only on paper. The program is 
untested and would be difficult to plan, develop and make operational 
in time to make a significant dent in the shortfall of student loan 
funding needs for the coming academic year.
    The Secondary Market of Last Resort Program, as described in S. 
2815, calls for the Secretary to purchase student loans from lenders. 
Based on the current language of S. 2815, the program would end up 
being effective only as a mechanism for lenders to sell off their 
portfolios and exit student loan lending. We do not believe this is the 
intent of the bill. Lenders remaining in the program would be expected 
to sell higher yielding loans originated prior to October 1, 2007 (the 
date of enactment for the College Cost Reduction Act), and in turn use 
such monies to originate post-October 1, 2007 loans which are lower 
yielding. We do not believe that lenders will act in this fashion. In 
addition, most student loans are housed in financing structures which 
require that when loans are sold, the proceeds from the sale are used 
to pay bondholders.
                          a proposed solution
    There is, however, a proposal on the table that would provide an 
immediate solution to funding new student loans for the autumn with 
little risk to and no financial outlay by the Federal Government. It is 
a proposal that has been incorporated to some extent into H.R. 5715 
passed last week in the House.
    If lenders were permitted to enter into ``Standby Loan Purchase 
Agreements'' with the Federal Government, whereby lenders would have 
the right and option to sell to the Federal Government a specific 
amount of loans at specific times, the lenders could go to the short-
term money markets, as distinguished from the long-term securitization 
markets, and raise the funds necessary to meet the student loan needs 
for the upcoming academic year.
    What is attractive about this proposal is that it is difficult to 
conceive of a set of circumstances in which the option to sell to the 
Department would actually be exercised, and lenders would end up 
actually selling loans to the Department. The mere existence of this 
backstop will put a floor on the value of the loans and give confidence 
to investors to again purchase student loan securities. The benefit for 
the Federal Government is that it can charge a reasonable fee to the 
lenders in return for providing this backstop.
    The ``Standby Loan Purchase Agreement'' concept is the only option 
proposed so far that has any serious chance of injecting enough new 
capital into the student loan system to ensure that all Ohio parents 
and students will be able to pay their college bills come July through 
October.
    We are pleased that the concept was added to H.R. 5715 and would 
encourage the Senate to add this provision to S. 2815.
    As the State of Ohio's nonprofit student loan lender, our primary 
purpose is to ensure that Ohioans can pay for college. We are confident 
that the ``Standby Loan Purchase Agreement'' concept will permit us to 
fulfill this purpose in the upcoming academic year. Without it, this 
purpose will be severely compromised--and it is Ohio students, parents, 
and citizens who will pay the price.
    Thank you! I am happy to answer any questions.

    Senator Brown. Thank you very, very much.
    Just to clarify--you only do FFELP loans? You obviously do 
direct loans, you don't do private loans, either?
    Mr. Kohne. Recently we started a program to offer private 
loans through another party--National City Bank and another 
private lender. A couple of weeks ago, we had to stop the 
program, and we don't know what direction we're going to go in, 
in the future.
    Senator Brown. OK.
    Mr. Kohne. To answer your question, we only offer FFELP 
loans, right now.
    Senator Brown. Mr. Nassirian. Thank you.

  STATEMENT OF BARMAK NASSIRIAN, EXECUTIVE DIRECTOR, AMERICAN 
 ASSOCIATION OF COLLEGIATE REGISTRARS AND ADMISSIONS OFFICERS, 
                         WASHINGTON, DC

    Mr. Nassirian. Yes, sir.
    Good morning, Senator, thank you for this opportunity to 
appear at the hearing and share our views with the committee.
    I am Associate Executive Director with the American 
Association of Collegiate Registrars and Admissions Officers, 
we are very concerned about the very issues you raised in your 
comments, and the issues that my colleagues have addressed in 
their remarks, namely the question of access, particularly for 
low- and middle-income Americans who depend on the availability 
of student aid, and on sound Federal policy, to participate in 
higher education.
    I'm not going to belabor the written testimony, other than 
to simply highlight the points you, yourself, made, namely that 
we really face a crisis in terms of the family resources, 
available aid, and college costs.
    To just recast the statistic you just cited, if you look at 
the decade from academic year 1996-1997 to academic year 2006-
2007, median family income, adjusted for inflation, actually 
fell by 1 percent in the United States. College costs, however, 
escalated during that same period. Public higher education 
tuition and fees went up by 52 percent, adjusted for inflation, 
private institutions went up by 34 percent. Now, that ought to 
be alarming. That, in itself, sort of tells the story. Families 
are simply not accumulating assets to pay for college costs. 
What we've done--the Federal Government has attempted mightily, 
through the provision of gift aid, and the creation of various 
loan aid programs, to fill the gap, but the fact is, an abyss 
has opened up, and that abyss is being filled with borrowing.
    It matters enormously for us, collectively, to think about 
how the three pieces of this puzzle are going to come together.
    Now, this committee is chiefly charged with the design of 
the aid programs, and I dare say the success of this committee 
in facilitating access to college is what's going to determine 
whether American families can look to future income growth. 
It's a critical national issue that you're addressing.
    With regard to the aid programs, I'm going to quickly 
highlight some of the points I belabored in my testimony. I 
think they've been amply demonstrated by Ms. Miller's comments, 
as well as Ms. Van Camp's comment.
    With regard to the design of the loan programs, we really 
confront issues of program integrity. These issues have 
inflationary consequences. I don't know anything about the 
particular institution that Ms. Miller was referencing, but the 
fact of the matter is that we have a number of institutions 
that participate in these programs without adequate safeguard 
for students. It shouldn't surprise anybody that costs escalate 
through the roof at these institutions, and that they tend to 
collaborate with lenders in packaging very expensive, 
unconscionably high-rate loans, which most students don't quite 
understand at the time that they obligate themselves.
    There is much to be done with regard to program integrity, 
there are two provisions, in particular, that I want to bring 
to your attention.
    One is the so-called ``90/10 rule,'' which guarantees that 
institutions do not rely disproportionately on Federal programs 
in terms of their revenues. If a program has to derive more 
than 90 cents on the dollar for its revenues from these 
programs, that's another way of, essentially, understanding it 
to be unable to sell to anybody except the neediest students, 
and that ought to be of concern to the committee.
    I'm sorry to say that the committee's moving in the wrong 
direction on the 90/10 provision, and is actually weakening it. 
Strengthening 90/10 is one of the first steps the committee 
could take in both controlling costs and improving program 
integrity, so Ms. Miller's story doesn't repeat itself.
    Second provision which would be well worth examining would 
be an extension of the default rate window for purposes of 
calculating the official cohort default rate. It is an anomaly, 
to say the least, that when a default occurs, certainly the 
student is ruined for life, because we hound them, into the 
grave, literally, until we attempt to recover as much of the 
loan as possible. The Federal taxpayer tends to be on the hook 
for the cost, but ironically, the school where the loans were 
taken out is only held liable for a very narrow window of 2 
years. It is only those defaults that occur within 2 years that 
count against the school.
    Now, I don't know of any other arrangement where a vendor 
could actually manufacture so many defaults, by pushing them 
outside of that artificial window--make arrangements not to 
have them count against the vendor.
    The extension of the cohort default window would be an 
additional remedy that would improve program integrity, and 
efficiency of the programs.
    There is clearly an issue on the collegiate front with 
costs, and the challenge that the committee faces is that the 
multilateralism of the financing system--with the States and 
the institutions and the Federal Government and families, and 
the students themselves being stakeholders who together pay for 
college--that that challenge makes it very complicated for the 
committee to attempt to bring price discipline to college 
costs.
    One of the first and most constructive steps that the 
committee could take, would be to at the very least, remove 
those provisions of Federal law that serve as cost-drivers. We 
have too many programs, the regulations for those programs do 
not tend to mesh together particularly well. There is an 
enormous amount of reporting, that institutions have to 
actually hire people to generate, and improvements there could 
bring quite a reduction in college pricing.
    That's another area that the committee could examine.
    I'm going to quickly segue to the topic near and dear to 
your heart, namely, private label lending, and propose two 
steps that Congress could take that would significantly improve 
the situation on that front.
    One, the fact that private label loans are nondischargeable 
in bankruptcy has been a very foundational reason for their 
explosive growth. We have essentially rendered lots of these 
loans economical by the fact that they really are no longer 
loans properly understood, but indentured instruments. Lenders 
become indifferent to the fact that the borrower shouldn't be 
taking that loan out--and I suspect Ms. Miller will testify to 
this--because they're not really tremendously concerned about 
repayment of the loan obligation, they understand that because 
Federal law privileges the instrument as nondischargeable in 
bankruptcy, they essentially own a portion of the individual's 
income for life. The nondis-
chargeability provision is one that Congress should re-examine 
and address, because in some ways it has driven the growth of 
the private label loan program.
    There is a subsidiary step that Congress could take, that 
this committee could examine, and that is--now, I have to point 
out that the nondischargeability issue is not under the 
committee's jurisdiction. That's a jurisdictional issue, but I 
certainly believe that you could--as a member of this 
committee--play a constructive part in promoting that student 
loans ought to be dischargeable, like any other consumer debt.
    The committee does have jurisdiction over packaging 
practices, which have also led to the explosive growth of 
private label loan programs. It is unconscionable that 
institutions are allowed to put private label loans that 
actually provide revenue to the institution on the student's 
aid package. The private label loan, that is actually a money-
maker for the school, should not be misrepresented to students 
as financial aid. Any more than a car loan you take, at market 
rates, that generates revenues for the car dealership, could be 
portrayed as financial aid.
    These are two steps with respect to private label loans. I 
will very quickly address the issue of Federal lending, and 
some of our concerns, I candidly couldn't disagree more with my 
colleague Mr. Kohne, in terms of his recommendation on Federal 
intervention in the student loan market. We have been 
monitoring this situation, I am certainly aware that the 
capital markets are in turmoil, there certainly is a credit 
crunch, it is a global credit crunch, it afflicts everybody--
not just student loans--and if there is to be a taxpayer bail 
out, I strongly encourage the committee, very carefully, to 
exert its jurisdiction.
    We think the committee has taken a number of very 
constructive steps already. My testimony outlines our support 
for your LLR provisions--I candidly doubt that Lender of Last 
Resort delivered through guarantee agencies is ever going to 
work, because guarantors don't have the infrastructure in place 
to originate loans.
    I do think one of the easier ways in which the committee 
could ensure availability of FFELP loans, would be to allow the 
Secretary to serve as a lender and a guarantor under part B of 
title IV. If you were to do that, the Secretary could use any 
delivery mechanism that proves to work, to make sure there is 
funding available for students.
    In any case, the LLR approach, the Lender of Last Resort 
approach, is promising, the authority of the Secretary to 
purchase existing loan assets is certainly agreeable and would 
bring liquidity to the market. The notion of allowing advanced 
purchases or any form of public financing of private portfolios 
is extremely disturbing, and it represents a multi-billion 
dollar bailout with very little guarantee of accountability, 
one, and second--with a kind of distortive effect on the market 
that Congress ought to be very careful about.
    Finally, I want to join the comments of my colleagues in 
terms of the attention that ought to be paid to the direct loan 
program. Direct loan program suffers one major disadvantage, 
it's a legacy of the 109th Congress, which played, you know, 
what can only be described as a budget gimmick, and it's an 
extraordinarily irresponsible budget gimmick. We have billions 
of dollars of loan revenues going out, taxpayers are on the 
hook to the tune of almost $100 billion of new loan 
originations per year, and yet Congress decided in order to 
record the one-time savings to take the Admin Account that is 
supposed to oversee the proper disbursement and operation of 
the loan programs, and poured it over from the mandatory side 
of the budget to the discretionary side of the budget, which 
means the taxpayers have no assurance, year by year by year, 
that proper oversight is going to be financed.
    Moving section 258 back into the mandatory side of the 
budget would be a tremendous step in the right direction, both 
to assist the Department with scaling up direct lending, if 
needed, and with regard to any kind of oversight of the FFELP 
program, that I think is called for.
    I will stop there, and would be happy to answer any 
questions, thank you.
    [The prepared statement of Mr. Nassirian follows:]
                 Prepared Statement of Barmak Nassirian
    Mr. Chairman and members of the committee, my name is Barmak 
Nassirian and I am Associate Executive Director with the American 
Association of Collegiate Registrars and Admissions Officers (AACRAO). 
I am honored to have this opportunity to participate in today's hearing 
and address the important topic of your deliberations.
    AACRAO is a nonprofit association of more than 2,500 institutions 
of higher education and more than 10,000 campus enrollment services 
officials. The campus administrative officials that comprise our 
membership range from front-line administrative staff to senior 
administrators with primary responsibility for enrollment planning, 
admission, financial aid, records management, advising, programming, 
and other important operations central to the success of students and 
the efficient administration of colleges and universities.
    The public and private benefits of higher education are well-
documented. Not only does participation in higher education correlate 
with higher earnings and lower unemployment, it is also associated with 
a wide range of additional social benefits that extend from better 
health to greater civic engagement. Clearly, it is in the Nation's 
interest to enable as many of our citizens to participate in higher 
education as possible.
    Today's hearing examines the Nation's decades-long efforts to 
ensure broad access to higher education for all Americans. The 
conditions of access generally divide into the two categories of 
academic preparation and affordability. While the latter is the 
specific topic of today's hearing, it is important to acknowledge the 
importance of proper academic preparation as well. Continued 
improvements to elementary and secondary education should thus be 
viewed as a critical component of a national strategy for greater 
access to college. Beyond academic preparation, however, students and 
families confront the challenge of college costs and the question of 
affordability.
    In brief outline, affordability can be viewed as the interplay of 
three distinct factors: family incomes, college costs, and available 
financial aid. I will briefly address all three, but focus my comments 
on Federal policy options on financial aid, particularly with regard to 
the more immediate issue of student loans.
    It is important at the outset of any discussion of affordability to 
emphasize that much of the public discourse and most of the media 
coverage of the issue have focused on institutions with exceptionally 
high nominal prices. Of course, nominal prices and actual out-of-pocket 
expenses tend to be markedly different figures, particularly at 
institutions with high nominal tuition prices. Misperceptions about 
affordability are rampant and have emerged as a real concern for their 
deleterious impact on low-income behavior. Higher education advocates 
are generally alarmed at how the public typically overstates college 
prices, and worry that families and students may base their decisions 
about college on incorrect or incomplete information about actual 
costs. Nominal tuition and fees at public 2-year institutions for 2007-
2008 stood at $2,361, while the figures for public 4-year and private 
4-year institutions were $6,185 and $23,712 respectively. On average, 
full-time students receive about $2,040 in combined aid at public 2-
year institutions, $3,600 at public 4-year institutions and $9,300 at 
private 4-year colleges. It is important to note that these are average 
figures, and that the amount of aid is generally higher for lower-
income students.
    These figures should be somewhat reassuring in that they paint a 
better overall picture of access than the one based solely on nominal 
tuition trends at a handful of institutions. Yet the gap between the 
actual costs of higher education and family incomes has been widening. 
Between 1996-1997 and 2006-2007, while real median family income 
declined by 1 percent, inflation-adjusted tuition and fees increased at 
public 4-year institutions by 52 percent and at private 4-year 
institutions by 34 percent. The decline in real incomes of many 
families represents the greatest nationwide barrier to college. 
Reversing this alarming trend requires a strategy to promote greater 
participation in higher education, particularly for lower-income 
Americans, a responsibility that has historically been assigned to this 
committee.
    As the committee deliberates about policy options to broaden 
access, it should pay attention to the interaction of postsecondary 
pricing issues and Federal aid programs. On the pricing front, a 
central challenge facing Federal policy is the creation of incentives 
for all stakeholders in the financing system to contribute their fair 
share in support of higher education. This requires better coordination 
with the States and the institutions to control costs. It also requires 
a candid review of the extent to which Federal regulations create 
added- and at least in some cases, unnecessary-costs for institutions.
    In its design of Federal aid policies, the committee should examine 
simple improvements to program integrity that could simultaneously 
control costs and improve access. The Federal financial aid programs 
are supplying a disproportionate amount of Federal subsidies to the 
for-profit participants in the system. In the academic year 2005-2006, 
for example, while the for-profit sector's share of total enrollments 
was only 6 percent, it accounted for more than 19 percent of Pell grant 
funds and for about 37 percent of officially recorded defaults. While 
for-profit providers can play a constructive role in postsecondary 
education, it is clear that they are becoming increasingly dependent on 
the Federal Government as their primary source of revenues and profits. 
The committee can improve accountability and program effectiveness in 
this sector by limiting the percentage of revenues it derives from aid 
programs to a reasonable amount. Unfortunately, the sector has 
successfully argued against meaningful restrictions on its receipt of 
Federal dollars. The concern here is not solely that dependency on 
Federal dollars is highly inflationary, which it is. The committee 
should also be wary of the quality of programs that find no paying 
customers but student aid programs.
    Beyond its leadership in advocating for better funding of existing 
student aid programs, the committee should also examine the 
improvements it can make to the basic design and configuration of these 
programs. To its credit, the committee has made great strides in this 
connection over the course of the past year. The higher education 
community stands ready to work with the committee in making further 
improvements to aid programs, particularly in connection with the 
Academic Competitiveness and the SMART Grants, to remedy their current 
shortcomings.
    Any discussion of affordability would be incomplete without 
recognizing the growing role of student loans as an instrument of 
access. It is important to note that responsible borrowing can indeed 
be viewed as an investment in education. Regrettably, there is evidence 
that some students may be so culturally averse to borrowing that they 
give up on or postpone higher education in order to avoid debt. 
Students and families should clearly understand that borrowing can in 
fact pay dividends if undertaken carefully and responsibly.
    Having made the positive point about borrowing, we should also note 
some of the more alarming trends in student loans. First, borrowing has 
grown significantly. Federal loans grew 51 percent in inflation-
adjusted dollars in the decade from 1996-2007 to 2006-2007. Second, 
over this same period, the more affordable Subsidized Stafford loans 
dropped from 54 percent of total educational loans to 32 percent, while 
much more expensive private loans grew by 12 percent. This committee 
deserves special recognition for its efforts to reverse this worrisome 
trend and for the significant improvements it has made to the terms and 
conditions of Federal student loans since 2007. These improvements 
include reductions in interest rates and important new repayment 
options that will make student loans far more affordable and more 
manageable for borrowers.
    As the committee is quite aware, the student loan industry and its 
supporters have for a number of months issued stern warnings about the 
impact of the global credit crunch on student loans. We have been 
carefully monitoring the availability of student loans, and have yet to 
document a single case of an eligible student being unable to obtain a 
Federal student loan. The situation is quite different with private-
label loans, particularly at low-quality, high-cost, for-profit 
institutions. This latter category is quite analogous to subprime 
mortgages that are at the very root of the global crisis of structured 
finance. These tend to be predatory loans that were actively marketed 
by loan companies to students who were unlikely to be able to ever 
repay them. The probable disappearance of these loans, far from 
constituting a ``crisis'' as some have argued, is a positive 
development.
    We do acknowledge that significantly increased funding costs for a 
subset of lenders--i.e., those that rely on securitization or auction-
rate securities to fund their student loan portfolios--may drive them 
out of the student loan market temporarily. This does not, in itself, 
justify a Federal bailout of troubled companies as some have proposed. 
These companies reaped unconscionable profits over the course of the 
past decade, and should be allowed to deal with the vicissitudes of the 
capital markets on their own.
    While Congress should rightly remain indifferent to the financial 
difficulties of particular companies, it does have a legitimate 
interest in ensuring that systemic difficulties do not frustrate 
Federal policy goals. There is every reason to believe that bank-based 
Federal student loans will continue to be widely available through 
balance-sheet lenders over the short-term and that any liquidity 
problems will be ultimately resolved through concerted global action on 
the credit crunch. But to avoid the slightest possibility of a 
disruption, the committee has decided to take a number of preemptive 
steps, which we applaud. We would also like to provide additional 
policy options for you to consider.
    First, we support the immediate creation of an operational Lender-
of-Last-Resort (LLR). In our view, however, relying on the existing 
network of guaranty agencies is unlikely to work if a real crisis were 
to materialize by the beginning of the next academic year. Guaranty 
agencies simply do not have the infrastructure in place to originate 
loans, and would only slow down the loan origination and disbursement 
processes. A far more effective delivery option would be for the 
committee to authorize the Secretary of Education to serve as a lender 
and guarantor under Part B, Title IV of the Higher Education Act. With 
this authority in place, the Secretary would be able to contract with 
any entity, including guaranty agencies where appropriate, that are 
deemed to be capable of serving as a safety net in the event of a real 
crisis.
    In addition, we encourage the committee to take steps to ensure 
that any LLR program it authorizes does not inadvertently become yet 
another stand-alone loan program alongside ``regular'' guaranteed 
student loans and direct loans. An LLR program that can be activated by 
schools, and operated by guaranty agencies with Federal funding and 100 
percent Federal guaranties, would almost certainly become an instrument 
of self-dealing by schools and guaranty agencies. We hope the committee 
imposes meaningful criteria for activation of any LLR programs it puts 
in place.
    Second, we support the committee's authorization of Federal 
purchases of federally guaranteed student loans to address any 
liquidity problems, but doubt that this policy can be implemented in 
time to be of use in addressing short-term liquidity problems. We 
specifically urge the committee to be wary of creating a Federal 
secondary market without adequate protections for the taxpayers. We 
also believe that the Secretary of Treasury should approve the 
expenditure of Federal funds for purchases of guaranteed student loan 
assets. Furthermore, we strongly advise against authorizing advance 
Federal purchases of future loan assets because this would effectively 
create a new futures market in which Wall Street would be allowed to 
bet on interest rates against the Secretary of Education, or worse yet, 
against this committee.
    Third, we are very concerned about allowing student loan companies 
to access Federal funding, for example, through borrowing from the 
Federal Financing Bank. While a large-scale experiment of Federal 
funding may provide the Federal Government with a market mechanism to 
price the correct subsidy rate for bank-originated loans, it is 
unlikely that this could be done in time to serve as a safety net for 
the coming academic term. A more likely outcome, therefore, would be a 
Federal bailout of inefficient lenders at the expense of balance-sheet 
lenders that have already indicated they plan to continue and grow 
their federally guaranteed student loan products.
    Fourth, we strongly support the committee's proposed enhancements 
to the Federal PLUS program. We believe that these improvements will 
make PLUS significantly more attractive to parents, who will be able to 
use it as an excellent alternative to expensive private-label loans.
    Finally, we believe the committee should also use the Direct Loan 
program as an additional delivery option. Specifically, the Secretary 
should be instructed to take the necessary steps to allow that program 
to serve as a safety net for borrowers. In connection with direct 
lending, which has fallen into some measure of disrepair under this 
Administration's stewardship, an important step the committee should 
consider is the restoration of mandatory administrative funding to 
Section 458 of the Higher Education Act. One of the most irresponsible 
one-time budget savings of the 109th Congress was its decision to move 
funding for oversight and administration of the billions of mandatory 
dollars flowing through the loan programs to the discretionary side of 
the budget. Restoring Section 458 funding would provide the Secretary 
with the resources needed for a coordinated Federal response should a 
crisis actually materialize.
    I thank the committee and its membership for their distinguished 
record of leadership on these important issues, and appreciate the 
opportunity to share these comments with you. We stand ready to assist 
you with our shared goal of fulfilling the Nation's promise of 
educational access for all Americans.

    Senator Brown. Mr. Nassirian, one brief comment, and then I 
want to start the questioning with you, Ms. Miller.
    The bankruptcy provisions you talked about, Senator 
Kennedy, and Senator Dodd, the Chair of the Banking Committee, 
and I and a handful of others are working on legislation that 
creates a prohibition on private loans for 5 years if someone 
goes into foreclosure. They've already obviously had enough 
problems with their credit and we want to try to remove that 
provision.
    Mr. Nassirian. I appreciate that, we're very grateful.
    Senator Brown. First of all, all of your statements will be 
entered into the official Health, Education, Labor, and 
Pensions Committee record, and all of the discussion we have 
now will also be included. When I ask questions, I want to ask 
questions of each of you individually, but as I do that, if any 
of you want to comment on something, just speak up and we'll do 
that.
    Ms. Miller, run through for me what exactly happened with 
you--take me through the process, from when you got your 
financial aid for Brooks Institute. What kind of information 
did you receive from their financial aid office? Were there 
multiple lenders you considered? Walk me through that process, 
what you were told, and what you weren't told?
    Ms. Miller. When I initially got involved, I specifically 
wanted just Federal loans, because that's all I was really used 
to--I wasn't aware of private lenders at that time.
    Senator Brown. At OU, you had only done----
    Ms. Miller. Federal subsidized and unsubsidized, and I 
think I had the Pell grant, and I had a couple of other smaller 
grants to help me get through.
    With Brooks, in particular, the only lender that they 
offered at the time was Sallie Mae, so I wasn't aware of any 
other lenders at the time, and there was very little 
information.
    They actually didn't have anyone from Sallie Mae there, to 
help you go over the paperwork, to kind of understand what 
you're getting into. The only person that was actually there 
was one person in the financial aid office who couldn't really 
even answer the questions that I had at that point.
    Basically, Sallie Mae was the only thing offered, and you 
basically signed the promissory note right there without really 
being walked through it. Had I known these were at 18 percent, 
there is absolutely no way I probably would have gotten 
involved, even though the desire to be educated in photography 
was--obviously, it's a passion of mine, so I probably would 
have done it at any cost. I think even then, knowing that when 
you add up the education over those years, that you know that 
your repayment is going to be probably unfeasible, so I kind of 
wish I had been more informed about private loans, and how they 
work with students, at the time.
    Even so, Sallie Mae is completely uncooperative. With a 
$21,000 loan, my payments from which they have rescheduled--
these figures are absolutely astronomical. For a $21,000 loan, 
which is less than a year of education, mind you, that it's 9 
months--they have me at 18.276 percent, and their figures and 
calculations, for the repayment schedule which an average 
student would be one, which is anywhere from, I guess, 25 to 30 
years--mine is extended as long as you can probably get it. My 
numbers, for the total of payments for a $21,000 loan over 30 
years is $102,443.38.
    You're talking almost $70,000 worth of interest, on a 
$21,000 initial educational loan. When I first started getting 
these letters, I literally thought that they were printed 
wrong. I thought, there is absolutely no way this is correct. I 
actually went to a bank, and I talked to them, and I said, 
``Can I refinance this? Or, how does this work? How do I do 
this?'' And, literally, the people at the bank, the lenders 
literally cracked up in hysterical laughter. They said, ``You 
need to call Sallie Mae, there's no way these numbers can be 
right.''
    Sure enough, I go back to Sallie Mae, I go back to the 
lender, and so basically a monthly payment would be anywhere 
from about $630 to almost $700 a month--which I'm completely--
--
    Senator Brown. For 30 years.
    Ms. Miller. Over 30 years, yes. I explained to them, I 
said, you know, ``I'm willing to pay''--you have to realize 
when students get into debt, these are, for the most part, 
responsible individuals who want to better themselves and their 
communities, they're not out to gouge and run away from 
financial responsibility--that's not the point. Because, when 
you get into these situations, and you have to start looking 
at, as you're getting older, and a lot of kids, they end up 
having families and they're looking at their school loans, and 
it's basically probably the largest hindrance, I'd say, even to 
most mortgages.
    I mean, I see kids coming out of Brooks, and they have, 
literally, $2,000 and $3,000 a month expectancy in repayment, 
right off the bat. The sad thing is that Sallie Mae won't 
cooperate. Because when I spoke with them--once I actually did 
get a hold of them, which mind you took about 6 months for them 
to return a phone call, I said, ``Look, most repayments, 
anywhere from $200 to $400, I'd be happy to send that, if 
there's any way we can re-route this interest rate, or if you 
could just cooperate on any level,'' and the answer is, 
``Absolutely not.''
    Even if you send money to show that you're not--because 
most people don't want to default on educational loans, because 
it's obviously going to catch up with you in the long run, so 
even when I was sending anywhere from $200 to $400 a month, or 
anything in general, even if you send $50 a month, they don't 
really count that off of what your educational loan is. They 
basically look at that as you are just refusing to cooperate 
and pay.
    Even if you do send the money, if it's not exactly what 
you're basically signed up for, they're still going to call you 
and harass you and the harassment calls are absolutely rude. 
We're talking name-calling, I mean, it's gotten pretty dirty 
with Sallie Mae on the phone, so usually I just have to hang 
up. Because it's nearly impossible to figure out how you're 
going to cooperate with them, or them to cooperate with you.
    The whole situation's been stressful, not only for myself, 
but for a lot of my friends who are also in the field. Like I 
was saying, a student's going to come out in debt, in the 
average of $100,000 in debt in their repayments.
    I have a friend named Joey Kenalty, he's one of my 
colleagues that I actually work with in the field, and I would 
love to speak on his behalf--I saw his numbers and he's 
literally expected to pay $350,000 on $100,000 educational 
loan. Through Sallie Mae, through Brooks, I think his interest 
rates are probably anywhere from 17 to 20 percent, I'm not 
exactly sure.
    It's these types of situations that are deterring students 
from going to get educational loans, because when these things 
start to surface, I don't think people understand the severity 
of repayment, and just the havoc it can cause on any student, 
or any individual who just wants a higher education, and it's 
obviously a system that's completely failing students, just 
because of lack of informing a student when they go to get 
loans.
    Senator Brown. When did you first realize that your loan 
repayment was 18 percent, that you were paying 18 percent?
    Ms. Miller. Probably when I started getting these payment 
schedules and disclosure statements from Sallie Mae, which was 
probably about 6 months after I left Brooks, maybe 3 months--
I'm not really sure.
    Senator Brown. So, more than a year after you signed up.
    Ms. Miller. Oh, yes. Yes.
    Senator Brown. Did you not know of the availability of the 
Federal program? You knew about it at OU?
    Ms. Miller. Right.
    Senator Brown. But you didn't know at Brooks you could use 
some of that?
    Ms. Miller. Well, actually, that was actually very 
confusing because apparently Brooks Institute is a private 
school, so they have very little funding from Federal, through 
certain Federal programs, which I didn't really know. Because I 
don't think I actually have any Federal loans through Brooks.
    Senator Brown. Mr. Nassirian, could she have gotten some 
through Brooks? She was eligible for some funding from FFELP, 
right?
    Mr. Nassirian. She would have been eligible. We are very 
concerned, because the Bush administration early on weakened a 
number of protections that students were entitled to under the 
Higher Education Act. We are concerned that some institutions--
and I'm not speaking specifically about the one that Ms. Miller 
attended--we are concerned that students are not--that proper 
disclosures are not provided to students, so that students are 
essentially, sometimes steered toward the more expensive loan 
program, even though better options exist.
    My suspicion is that she would have been eligible for 
significantly better borrowing----
    Senator Brown. Is Brooks still not telling? Do you know of 
people who are entering now that are signing up for student 
loans at Brooks, do you have friends there that sort of keep 
you in touch?
    Ms. Miller. Right.
    Senator Brown. Do they still not know of any Federal 
program they--partly because of the Bush administration's 
actions, but partly because the school doesn't step up?
    Ms. Miller. Actually, I think there may--if there is 
Federal funding, it's very minimal. Because, for an institution 
like Brooks that's private, the tuition fees for 1 year--even 
when I was at OU, I never had to take out a private loan that 
wasn't Federal. If they do have them through Brooks, it was 
probably very minimal, probably a couple of thousand dollars at 
that. You can't really--they weren't willing to take out that 
many nonprivate loans for a school like Brooks.
    It's kind of complicated, because Brooks is a school that 
was bought out by a company called CEC, and a lot of things 
turned around. Because from what I understand, Brooks Institute 
is not even an accredited college at this point. They were 
under litigation in the State of California for being even 
questionable as an accredited college. There are a lot of 
questions--even, concerning the school--which stands today. I 
think a lot of people are kind of confused on how that all 
works.
    Senator Brown. OK. Thank you for joining us, and certainly 
chime in on anybody else's questions.
    Ms. Van Camp, when you began the process, because of your 
achievements and other things, you got some grants and 
assistance that way. What was your experience, you went to Cal 
Winchester, is that right?
    Ms. Van Camp. Yes.
    Senator Brown. What was your experience when you first saw 
what you needed to do? Nobody in your family had gone to 
college before, right?
    Ms. Van Camp. Right. Well, some extended family, but, yes.
    Senator Brown. My wife was the first in her family to go to 
college, she went to Kent State, and she tells stories. She 
graduated almost 30 years ago--and she graduated with about 
$2,500 in student loans, because the Federal Government then 
provided way more and all of the differences today--but she 
said she would call home while she was in school and her 
parents didn't have answers, because they didn't have that sort 
of college knowledge that is passed onto the next generation. 
She would just hang the phone up sometimes and cry, because she 
couldn't get the information or the advice from her family that 
they would have loved to have given her, if they could have. 
Walk through that process--when you first started figuring out 
how you were going to finance your education, in addition to 
all of the help you got--
    Ms. Van Camp. Right.
    Senator Brown. But to fill that in--how complicated was it, 
and how do we make that a little bit simpler?
    One more thing, I'm sorry to interrupt----
    Ms. Van Camp. That's all right.
    Senator Brown. And draw upon your leadership now at this 
school, and what you're hearing from other students?
    Ms. Van Camp. First, I would like to say, looking back at 
it retrospectively, the only reason I'm not telling the same 
story that Ms. Miller is telling is because I found incredible 
mentors in my agricultural educators and people at that 
school--not necessarily my Guidance Counselor, let's be clear.
    I remember really worrying--before I started worrying about 
how I would pay for college, I thought, ``Well, if I'm thinking 
about going to college, what am I going to major in? '' And I 
remember asking my family what I should major in, and them not 
even being able to give me any advice whatsoever. I think one 
of the most difficult parts for me was filling out the FAFSA 
form, the Free--I always get this acronym wrong--Free 
Application for Federal Aid, Student Aid, right. My mom--well, 
the first time it was kind of really hard to figure it out, and 
I actually remember having to order my mom's PIN number for 
her, I mean, that's how clueless--my mom had no idea how to 
fill out this form.
    Really, I got support through my agricultural education 
teachers, I understand not everyone in school has that kind of 
support system, though.
    It is a daunting process. I can't even imagine--I think 
back, I was extremely naive, and I can't even imagine, had I 
not received this scholarship and the financial aid, where I 
would be now. It's very daunting.
    Senator Brown. You had mentioned something I thought was 
pretty interesting, the lowest achievers in the high-income 
quartile versus the highest achievers in the lowest quartile, 
what do we do? What can the Federal Government do about that? 
You're working on things here, what can we do about that?
    Ms. Van Camp. Well, the biggest thing--supporting 
affordable loan options, and I'll be the first to admit, I 
don't understand everything about these loans, so I can't give 
you specifics like some of these experts can, but I think that, 
as I mentioned in my testimony--supporting--I would encourage 
you, when you think about an affordable education, to think 
about it holistically. I talked a lot about my experience on 
the Board, for example, as you mentioned. If I were working, 
like some of my colleagues, and in fact, my roommate works all 
the time, is constantly working at Bob Evans, as many hours as 
she can--I would not be able to have that time to volunteer on 
the Board of Trustees, which has been an invaluable 
opportunity, or to participate in the study abroad.
    When we're thinking about opening up opportunities for 
students, I encourage you to think about the entire educational 
experience. Some people might think, ``Well, they can scrape by 
and get tuition with this loan and that loan,'' but is that 
really equal access, in the end?
    Also, I would really encourage you to support diverse 
programs, as I mentioned, like Agricultural Education--
education is not a one-size-fits-all type of thing. If we're 
going to get the low-income bracket, and students from rural 
communities, and from inner-city and urban communities, we have 
to protect educational diversity, I think. I think that through 
funding programs like Agricultural education, or music 
programs, and things like that, you're providing those 
opportunities.
    Senator Brown. Go on.
    Ms. Van Camp. One other thing--I mentioned the National 
Institutes of Health, and I really think that it might seem 
kind of indirect, but that funding really does help provide 
opportunities for undergraduates. My research--one of my 
advisors actually has an NIH grant, and that money is helping--
written into those grants is often the opportunity to hire 
graduate and undergraduate students, and those are truly 
invaluable opportunities that add to the quality of that 
experience.
    Senator Brown. What kind of NIH grants are they, exactly? 
Do you know? Can you describe them?
    Ms. Van Camp. It's, I think RO1. I don't know a lot about 
it, it's a co-grant, she's a COPI, she's in Food Science, Dr. 
Yael Vodovotz----
    Senator Brown. So, is she doing research--she's being paid 
to do some NIH research? Is that what the grant is?
    Ms. Van Camp. Right, right, right. We're developing--well, 
she works with soy bread, and also with these chocolate 
candies--how lucky am I? That have cancer-preventative 
properties.
    Senator Brown. It's the old ``chocolate prevents cancer'' 
racket that's going on?
    [Laughter.]
    Ms. Van Camp. It's the new story.
    Senator Brown. Could you share with our committee some more 
information on that. Could you find out, could you get from her 
more about NIH?
    Ms. Van Camp. Yes, I could get you the specifics about her 
grant, yes.
    [The information previously referred to follows:]
                                               May 1, 2008.
Hon. Sherrod Brown,
455 Russell Senate Building,
Washington, DC. 20510.
    Dear Senator Brown: As you will recall, I am the undergraduate 
student from The Ohio State University who had the privilege of sharing 
testimony with you last week at the field hearing of the Senate 
Committee on Health, Education, Labor, and Pensions titled Fulfilling 
the Promise of an Affordable College Education. I am writing to respond 
to your question regarding how the support of grant money from the 
National Institutes of Health (NIH) has provided students access to a 
high quality educational experience. You also mentioned that you were 
particularly interested in how Ohio might be able to increase its 
success in securing NIH funding. As I mentioned at the hearing, I am a 
third-year undergraduate student in the Department of Food Science and 
Technology and I have worked as a student assistant in Dr. Yael 
Vodovotz's lab since my first quarter at Ohio State. I hope my story of 
how the multidisciplinary nature of funding in my lab has greatly 
benefited students, faculty, and the university will provide you with 
some valuable information that will help you to move forward on this 
issue.
    First, I would like to give you a little background on our lab and 
its funding sources. We currently have two undergraduates and five 
graduate students working on various research projects. Our wages are 
paid through a variety of funding sources. My wages are paid by the 
university's Land Grant Work Study Program, while some of the other 
students in our lab receive money from industry-funded research grants 
or fellowships. However, it is the larger grants from the U.S. 
Department of Agriculture (USDA) and the National Institutes of Health 
(NIH), which provide the funding necessary to ensure that we have 
access to the best facilities and equipment. Due to this important 
funding, I have learned to use sophisticated analysis equipment, and I 
have had the opportunity to be exposed to cutting edge research as a 
second- and third-year undergraduate. These experiences have proven to 
be truly invaluable and have greatly influenced my decision to attend 
graduate school.
    The NIH grant, which was awarded to Dr. Vodovotz last year, is an 
R21 grant from the National Center of Complementary and Alternative 
Medicine (NCCAM) and National Cancer Institute (NCI). The purpose of 
the grant is to perform phase II clinical trials to examine if soy 
bread formulated by Dr. Vodovotz and former graduate student Cory 
Ballard, which is now the basis of a spin-off company, can help to 
reduce the risk of prostate cancer (Attachment 1), Dr. Vodovotz is one 
of the co-principal investigators (PIs), along with Dr. Steven Clinton, 
a medical oncologist and physician scientist, and Dr. Steven Schwartz, 
a professor of food science and technology (Attachment 2).
    This multidisciplinary collaboration between the Department of Food 
Science and Technology in the College of Food, Agricultural and 
Environmental Sciences and the Division of Hematology and Oncology in 
the College of Medicine is a truly unique partnership that has greatly 
benefited the students and faculty in both departments. This research 
has allowed all of the students in our lab to gain a better 
understanding of the true meaning of interdisciplinary research, and 
under Dr. Vodovotz's leadership we have created strong relationships 
with several other departments across the university, including the 
departments of Human Nutrition. Crop Science, Material Science and 
Engineering, and Agricultural, Environmental, and Development 
Economics. We do not think of Food Science, or any science for that 
matter, as an isolated discipline. Rather, we have gained the 
perspective that many disciplines across campus are related and offer 
unique opportunities to form synergistic partnerships.
    It is uncommon for a faculty member outside of the College of 
Medicine to be named as a PI on an NIH grant. However, with the support 
of Dr. Clinton in the College of Medicine, my adviser was able to 
achieve this feat. Earlier this year. Dr. Vodovotz applied for a USDA 
grant under the Improving Food Quality and Values Program, which if 
approved, will provide funding to investigate the release and 
adsorption of bioactive compounds in pomegranate candies to treat oral 
maladies (Attachment 3). If this research proves successful, Dr. 
Vodovotz believes it will build a strong case for a POI NIH grant, 
which is a comprehensive program grant and the highest level of funding 
NIH awards.
    My lab experiences at Ohio State illustrate two critical impacts of 
NIH funding that make a strong case for increased Federal support in 
his area. The first is that these funds provide undergraduate and 
graduate students access to a high quality educational experience, NIH 
grants offer invaluable opportunities for students to work in state-of-
the-art research facilities with distinguished faculty on cutting-edge 
research initiatives. According to the University's latest research 
report, the NIH awarded more than $162 million in research funding to 
Ohio State in 2006, which undoubtedly benefited thousands of students 
across campus. (Attachment 4). This funding provided students with 
unparalleled educational experiences that are essential to training the 
next generation of scientists who will address the most critical issues 
facing our society.
    The second important impact of NIH funding is that it encourages 
and supports interdisciplinary partnerships, such as the collaboration 
between the Department of Food Science and the James Cancer Center. 
These relationships are intellectually stimulating for students and 
faculty, and they provide invaluable opportunities for innovative and 
synergistic ideas. Under the leadership of President Gordon Gee's six 
strategic goals for Ohio State and Chancellor Eric Fingerhut's vision 
for the University System of Ohio, I believe, that we have enormous 
potential to increase Ohio's competitiveness for NIH funding. Ohio 
State has an incredible advantage in the breadth and depth of its 
programs, and President Gee's goals to ``forge one university'' and to 
``recast our research agenda'' will help us to capitalize on these 
strengths. Additionally, Chancellor Fingerhut's vision to create a 
comprehensive university system will increase Ohio's effectiveness and 
competitiveness in higher education. In the strategic plan for the 
University System of Ohio, which the Chancellor released a month ago, 
he stated,

          ``Indeed, research and academic excellence constitute Ohio 
        State's major contributions to the State and to the University 
        System of Ohio and continuing advancement along these 
        dimensions must be paramount for the university, the system, 
        and the State of Ohio,''

and

          ``research, academic excellence, and the quality of the 
        student body are appropriate measures for assessing the 
        performance [of Ohio State].''

These comments illustrate the clear link between our university's 
ability to secure major research funding from sources such as the NIH 
and our ability to build a prosperous future for the State.
    I hope my perspectives will prove helpful to the efforts of you and 
the committee. I thank you for your dedication to providing all 
qualified students access to a high quality educational experience. 
Please let me know if I can provide you any additional information on 
this subject.
            Best regards,
                                            Debra Van Camp,
                      Undergraduate Student, Ohio State University.
                                 ______
                                 
    Senator Brown. I've actually talked to President Gee and 
some others about this--Ohio ranks pretty low in per capita NIH 
funding. I don't know that we have a statewide program, or a 
strategy to attract funds. We rank in the bottom 10 on ERSA 
health money, on CDC money, and NIH we rank in the middle, and 
we should be doing better on that.
    Ms. Van Camp. Every year it gets harder and harder. It's 
more competitive and more competitive because the funding----
    Senator Brown. It's just as competitive if you live in 
other States as it is here, and we ought to be doing better.
    Ms. Van Camp. Right, right.
    Senator Brown. OK. Thank you very much.
    Ms. Van Camp. Thank you.
    Senator Brown. Ms. Miller, one other question--how old were 
you when you started to go and apply at Brooks? You had been at 
OU for a couple of years?
    Ms. Miller. That was 1997 through 1999, but I figured I 
wanted to be a photographer, so I started to travel, I worked 
like any other person, and basically formed my own education, 
and I traveled the world by working from one place to the next.
    I started at Brooks. I lived in northern California for 
about 3 years, and then I went south because I heard of Brooks, 
and that was 2003, and that was about 5 years ago, so I was 25 
at the time.
    Senator Brown. Twenty-five. And you had already attended 
the OU.
    Ms. Miller. Yes, I was in OU when I was younger, it was 
around 1997 through 1999, I was probably 17, 18.
    Senator Brown. Ms. Hart, you mentioned the banking industry 
challenges, and what that means to FFELP, what that means to 
private loans. Ohio State, as you mentioned, is the largest 
exclusively direct loan program in the country. I know some 
schools have both direct loans and FFELPS, some have just one 
or the other--and I know you'll probably get some disagreement 
from Mr. Kohne on this--but is your recommendation that we do 
all we can to move more and more students and more and more 
schools into direct loan?
    Ms. Hart. I think it really needs to be an institution 
decision. We've examined both here, regularly and periodically 
at Ohio State----
    Senator Brown. So, this isn't a permanent decision? This is 
revisited every couple, 3 years?
    Ms. Hart. It can be, under the provisions. We're always 
looking for what is best for our students. We feel that the 
competition between the two programs has really helped keep 
both of them more viable for all students--both in terms of 
interest rates--because those as you know, are set by the law--
it's more the added provisions that come as the result of that 
competition, that we think have been a very viable exchange in 
the programs.
    We've been extremely happy as direct lending has provided 
capital with the kind of assured basis that has really been 
valuable to our students. It's one thing to have the funding. 
Another is its reliability. I mentioned our students here at 
Moritz College of Law who happen to be the leading edge of the 
timing of our academic programs. It's having that secured 
financing--it's not just enough today, especially for students 
who are really reliant on student loans, as most of the 
borrowers are--to have their tuition paid.
    It's a matter of having books, being secure and able to 
focus in that first series of classes that you know how you're 
going to finance that term, and that you can really think about 
the subject matter, rather than, where is the money coming from 
that's going to keep me in school? And I think that's the 
primary goal of any of these programs.
    I worry very seriously about the message being sent to 
students today, that student loans are uncertain, that that 
creates the kind of fear about that security and it hits 
hardest on low- and middle-income students, as our data 
analysis shows.
    Senator Brown. When we had the 46 or so college presidents 
in Washington 2 weeks ago for the 1-day conference that we put 
together, there were some very small private schools that were 
talking, kind of among themselves about the same question that 
you deal with at Ohio State and the issues that Mr. Kohne works 
on. Do we do FFELP, do we do direct loan? Do we do a mix, do we 
make them both available? And some schools, I don't know if 
this was a majority, I don't know enough to know that, but some 
schools talked about at least looking to go to direct loan. 
Then they said they thought it might be administratively too 
difficult, because of their size.
    Chancellor Fingerhut and I began to talk about building 
some kind of a consortium of--not that the State would run it, 
but to help some sort of a consortium, or a co-op, of some 
sense, and in some sense to get the small schools that could 
apply together with each other's help. Does the size of the 
school kind of undercut their ability to change, or to do what 
they need to do to apply, to go to direct loan if that's what 
they choose?
    Ms. Hart. I don't think that the size of the school, in 
terms of maintenance is an issue. The administrative switch 
from one form to the other can be a fairly complicated and 
costly administrative front-end cost.
    Senator Brown. In either direction? From FFELP to direct--
--
    Ms. Hart. Either way.
    Senator Brown [continuing]. Or direct to FFELP?
    Ms. Hart. Either way. That's simply because dependent upon 
the functionality of your loan programs, you have to pull in 
from data processing systems--it's not just the financial aid 
office, it's registration, it's admissions, it's across the 
institutions--and that kind of conversion can be really costly, 
and I suspect that was probably the administrative process.
    Once it's going, I don't think there's a demonstrable 
difference between the two programs, but that change could be 
burdensome and costly for institutions, and the smaller you 
were, the higher proportion of costs----
    Senator Brown. Tell me again what the costs entail?
    Not the dollar amounts, but just the----
    Ms. Hart. Administrative data processing, to pull in the 
data that you would need, and to configure it in a different 
form for direct lending could be costly for an institution.
    Senator Brown. Is it difficult? If I'm a FFELPS school of 
800 students, 4-year school of 800 or 1,000 students--and I 
switch to direct loan, most of my students there, still have 
FFELP loans.
    Ms. Hart. Right.
    Senator Brown. I assume.
    Ms. Hart. Right.
    Senator Brown. And then they switch, is that a problem? 
That their new loans--if I'm a sophomore at that school, my new 
loans will be direct loans, my older loans will be FFELP--does 
that cause a problem?
    Ms. Hart. That is a problem, because most institutions in 
thinking constructively for their students, would probably try 
to hold the loans under the same program. In theory, that would 
mean running two different loan systems for at least a few 
years, to grandfather your students under their previous 
existing loan. I was jumping from the actual conversion to 
long-term maintenance, but you very ably talk about that, also, 
transition, that happens, at least when we've considered it, we 
felt the right thing to do for students, if we ever switched, 
would be to maintain both systems for a period of time--longer 
for us, because we have graduate and professional students. The 
more advanced your degrees, the longer that window.
    Senator Brown. OK, thank you.
    Mr. Kohne, is the place we want to get to with the whole 
student loan system, an expansion both of FFELP and an 
expansion of direct loans, squeezing out private loans totally, 
if we could get to that? So that there is, in some sense, more 
business for you and more business for direct lending--is that 
the ideal place to be on this?
    Mr. Kohne. Well, Senator, as almost a career-long FFELP 
person, when the direct loan program was introduced by 
President Clinton, and passed by the Congress, you know, we 
opposed it vigorously, we were all afraid of it, and looking 
back 15 years, I think I would agree with Tally, I would echo 
what Tally said, is that it's been good for both programs.
    I don't think the service that we provide to students and 
schools and the technology we use, just across the board, today 
cannot compare to what we were doing in the 1980s and early 
1990s.
    Senator Brown. Give me examples of why the service is 
better?
    Mr. Kohne. Well, I think the introduction of competition 
just woke us up and caused us to be much more customer-service 
oriented. In those days, we were more compliant-oriented--
worried about compliance with regs, and making sure the 
guarantee was preserved, and so forth. I think the introduction 
of a competitive program made us all very, more oriented toward 
school and borrower service.
    Senator Brown. And I assume, then, that you'd argue that if 
one had everything--FFELP or direct loan, that service would 
falter?
    Mr. Kohne. I believe so. I think it's been good for FFELP 
to have competition, yes.
    Ms. Hart. May I take you up on your invitation to answer 
another testifier's question?
    Senator Brown. Sure, sure, of course.
    Ms. Hart. I think the real question is less for me, 
personally, between direct and FFELP, than either of those 
programs with high-interest private loans, and credit cards. 
Because the real issue--and I understand, we have to address 
both--that's the responsibility of your committee, but I think 
it's really critical that we figure out a way to increase the 
low-interest borrowing for students. Because all of our 
evidence shows that absent that, it's the neediest student who 
suffers the most, who's most likely getting into high-interest 
private loans--and we haven't even touched on the growing 
evidence that absent sufficient financing, students rely on 
credit cards, which some may argue is the worst of all worlds.
    I hope that we can--whatever the structure of the programs, 
that a very important point for needy students, is to increase 
those loan limits. I mentioned--and I just wanted to 
underscore--put more funding into Perkins Loans, there's a 
number of different avenues that could help increase the 
aggregate loan limits for an individual student to secure 
adequate financing to keep them in school.
    Senator Brown. Ms. Miller, and Ms. Van Camp, do you know 
students who put all of this stuff on their credit cards?
    Ms. Van Camp. Not all of it, but I know some that have put 
some of it.
    Ms. Miller. I think that, with Brooks, in particular, a lot 
of their expenses are so costly, tuition is so costly, that 
kids feel like they have no other choice but to basically put a 
lot of things--because I mean, a photography school, you have 
to remember, there's not just books, you're talking a lot of 
equipment. I mean, you're going to shoot everything from a 35mm 
camera to an 8x10 film, to the newest digital, to printing to 
print labs--and you have to buy--they provide absolutely 
minimal, to say the least, when you first get involved. We were 
expected to provide our own chemicals for dark rooms. I worked 
through college--I was actually a radio personality, I 
bartended, and went to school at the same time--and my credit 
card debt wasn't nearly as substantial as some of my friends. I 
have friends who actually went the whole 3 years, but I have 
friends who are a good $20,000, $30,000 in credit card debt, 
just for trying to keep up with buying all of the equipment 
that you're expected to learn how to use.
    It gets tricky, and especially in a trade school, because a 
lot of that stuff--I mean, from what I understand, a certain 
percentage of things are provided, but a lot of it is not. 
Especially if you shoot for yourself, you have to have your own 
gear, you're not really--they're not going to provide that for 
you, so----
    Senator Brown. So, you're hearing about warnings----
    Mr. Kohne. We're not hearing much at all. We don't think 
they're very well informed about what could happen, I mean, 
it's starting to happen, but we think a lot of the schools are 
really not very well informed about the issue that could 
happen. We're starting to outreach to schools and college 
presidents and financial aid officers about this.
    Senator Brown. Ms. Hart, a minute ago, said that students 
already--if not the campuses themselves--students are beginning 
to fear some of the rumors they hear about this. What do we do 
to inform students, or to reassure students that they'll have 
access this fall? Any of you?
    Ms. Hart. I would love to see a headline that says that 
Congress assures that student aid will be available this fall, 
even if it is--the byline is ``details to follow,'' but that 
kind of assurance that there will be funding, because in every 
instance that I've been able to come up with, ultimately the 
solutions are provided, but it's the difference between the 
dialogue, the message of ``it might not be there,'' and 
students acting on that, at the same time, Congress has 
actually remedied the circumstance, historically. That would be 
my dream headline.
    Senator Brown. You know, we don't even write the articles, 
let alone the headlines. You're aware of that, OK.
    Ms. Hart. Citing your good action.
    Senator Brown. I appreciate that.
    Mr. Nassirian, I have a lot of questions I want to ask you.
    Explain to me again, the 90/10 rule. You said we're going 
in the wrong direction--could you shed some light on that for 
me?
    Mr. Nassirian. Sure, this dates back to, believe it or not, 
the Korean conflict, when the Veterans Administration noticed 
that lots of returning veterans were falling victim to 
unscrupulous providers who were simply capitalizing on the 
availability of VA benefits, of GI benefits.
    The Veterans Administration instituted a policy that no 
more than, at that time, 85 percent of enrollments at any 
institution could be returning veterans. The idea was not to 
create separate venues where nobody except beneficiaries seemed 
to be enrolling.
    In 1992, as a result of the scandals of the 1980s and the 
early 1990s, Congress incorporated a version of that into the 
Higher Education Act, then called the 80/5/15 rule. Back then 
it simply--it was supposed to be a self-executing provision 
that said, a condition of eligibility for participation in 
title IV programs is that 15 percent of your revenues come from 
non-title IV sources. The idea is, we don't want to have a 
system in which every student in the classroom is completely 
packaged from financial aid--completely packaged--meaning 
there's not a dollar of non-Federal aid involved in the 
revenues of the institution.
    This was very sound, it still allows for 100 percent of 
your students receiving aid. It's just that they can't all be 
paying the entirety of their tuition with Federal assistance.
    The provision was weakened in 1994, I believe, to be now 10 
percent of your revenues, and the for-profit lobby has been 
working very actively to essentially sabotage it. They keep it 
on the books in the reauthorization bill that's pending now in 
conference--keeps the rule on the books, but it eviscerates it 
by engaging in what I describe as, sort of a series of 
bookkeeping tricks as to what counts and what doesn't. It 
should be a self-executing financial revenue--it should be a 
cash-flow analysis. It should simply assure that 10 cents on 
the dollar of an institution's revenues comes from sources 
other than these programs. The logic behind it is simple--if 
100 percent of the revenues are coming from the program, there 
is no real money--it's all Federal money. It's analogous to the 
scandals of the 1980s when the Defense Department was buying 
$600 toilet seats--why? Because only Defense dollars pay that 
kind of cash. That's the concept.
    What is happening is the regulation is being internally 
sabotaged by a series of revisions as to what counts and what 
doesn't and it's not necessary--it should be a cash-flow 
analysis.
    Senator Brown. Thank you for that. We are working on that 
issue in conference committee and welcome your involvement.
    Mr. Nassirian. Very kind, thank you.
    Senator Brown. One last question for you and then I want to 
ask a couple of general questions to the panel in the last 15 
minutes or so.
    Mr. Nassirian, you said the private loan system is a money 
maker for schools--how is the private loan system a money maker 
for schools?
    Mr. Nassirian. We have run into all kinds of varieties of 
how private loans have been negotiated. There are school 
recourse loans where the school essentially steps in and does 
credit enhancement on behalf of its students. The challenge is 
particularly in the case of the for-profit sector.
    I'll give you one example without naming names--a while ago 
I was going through SEC filings of a very well-known student 
loan company, and I realized that they were making enormous 
private label loans to some pretty high risk students, at some 
very high default, for-profit institutions. The transaction 
didn't make any sense on its face--I mean, I couldn't wrap my 
head around, why would a lender step forward and make loans to 
a school that has a lifetime default rate of 50 percent without 
the Federal guarantee, how is this an economically feasible 
activity?
    Well, as you drill down, the financial statements, you 
realize that the reason the lender is making the loan, is 
because the school is essentially negotiating in advance an 
agreement with the lender as to what the likely default costs 
will be, and they're putting an amount equal to the total 
default projections in escrow with the lender.
    Which brings up the next question, now, how is this 
advantageous to the school, if the school is putting, let's say 
50 cents on every dollar of revenues back in escrow, how is 
this economical for the school? It's at that point that you 
realize, in some ways, what we used to see in the 1980s and the 
early 1990s and the for-profit education sector in those 
outrageous cases where obviously fraud was going on, the label 
you would put on it, is consumer fraud. The idea was to pull 
students in and take them for the amount of Federal aid that 
was available.
    Increasingly, in recent years--particularly with the advent 
of publicly traded corporations entering this space--it turns 
out that whether, that if fraud is alleged, it's not really 
consumer fraud--consumer fraud is a kind of a gateway to a 
bigger-scale activity, and that is investor fraud. In some 
ways, the school doesn't really care whether they make money or 
lose money on every student--even if what it takes is putting 
50 cents on the dollar in escrow with the lender--what they're 
interested in is ramping up their enrollments, because the 
enrollment numbers drive share value, and share value drives 
the options that executives can exercise.
    That's what we see very frequently, is arrangements in 
which the school is more than a little bit interested in 
ensuring that private label loans are made available, and 
actually actively marketed to their students.
    Ms. Miller. Can I just ask something real quick, to that? 
So, if you have students who are coming in for loans, and their 
probability and rate of default is high--who's really 
benefiting, then? I mean, obviously the financial institution's 
not making any money off of that, and obviously the student--do 
you know what I mean? It seems like a loss-loss situation. How 
would the financial institution benefit if they're going to 
default on their loans anyway? Do you know what I'm saying?
    Mr. Nassirian. Oh, I understand very well what you're 
asking.
    The way it works, to just give you an analogy--what we have 
seen over the course of the last 20 years, I mean, the world 
has turned upside down, I mean, look at the sub-prime mortgage 
crisis--the banks used to look over the shoulders of 
purchasers, because it was their money that was going into the 
purchase, so you could naturally assume that the system had 
checks and balances, that it wasn't just little you, but the 
giant institution had its money on the table along with you, 
and that really, uneconomical transactions wouldn't be 
consummated, because it wouldn't be, not only not in your 
interest, it wouldn't be in the banks' interest.
    What we have learned, much to our chagrin, as of the past 
year, is that the bank was, frankly, not only indifferent, but 
it was actually incentivized to make even uneconomic 
transactions occur, because of the advent of securitization 
means that it wasn't lending its money, it was simply acting as 
an agent, and it was selling securities to investors, most of 
whom were generally clueless as to what they were buying.
    The meltdown that my colleague refers to, quite accurately, 
in the securitization market, and the asset rates securities 
market, is attributable to the investors not getting spooked.
    With regard to your question, when you say, how is it in 
the school's interest, the management of many for-profit 
institutions may well be sort of in that same situation. That, 
you know, because who's the school? Arguably the investors in 
the school is the school, but the fact is, they don't exist as 
any substantial control.
    The management, however, because they are vested, because 
they have options, because they are fairly knowledgeable about 
what's going on, could in fact benefit from otherwise 
uneconomic transactions that ultimately bring the whole thing 
down, but over the short haul, result in fortunes changing 
hands--often out of your pocket, in the form of $600 monthly 
payments for 30 years----
    Ms. Miller. Right.
    Mr. Nassirian [continuing]. Into 18-hole private golf 
courses on the Eastern Shore of the State of Maryland, and 
other----
    Senator Brown. And, Ms. Miller, as Mr. Nassirian pointed 
out, in the banking and the foreclosure crisis--a lot of people 
made a lot of money off of that--rating agencies, brokers, 
people that slice and dice the derivatives, all that--and in 
the end homeowners lose, and look what's happening to banks 
around our State--one in Cleveland and all over the place, so--
in the last, we have about----
    Oh, I'm sorry, did somebody else want to add to--? I'm 
sorry, Mr. Kohne.
    Mr. Kohne. Senator, if I could respond to something my 
colleague Barmak said in his opening statements where he 
described what I was asking for in my comments as a ``bail 
out,'' we don't see it as that way at all. In fact, we see it 
as less of a bail out as what's been given in the mortgage 
industry, and what's currently in the Miller and Kennedy bills 
is a secondary market.
    What we're asking for is just a--use the power of the 
Federal Government to restore investor confidence--to go to the 
markets, to raise money to make student loans this fall. We're 
not asking the government to fix the problems with our existing 
finances--we'll fix those ourselves. We're just looking for a 
way to raise money to make student loans this fall. That's the 
first point, it's not retroactive, it's just forward-looking.
    The second thing is, we see this sort of like a government-
sponsored enterprise things--like Fannie Mae, Freddie Mac, 
Sallie Mae--who effectively used the Federal Government's 
credit, but paid a fee for it. We're willing to pay a fee for 
this service. We don't see it as any kind of a bail out at all. 
We see it as a way for the Federal Government to help us solve 
a problem that's beyond--that's totally beyond our control, 
that was not our fault, on a temporary basis, so that we can 
make student loans this fall. It's all about access.
    Senator Brown. OK. Thank you.
    I have one question I want to close with, and I'd like each 
to answer, if you can, just in literally a minute.
    The Department of Education's estimated as many as 40 to 60 
percent of students who take out private loans do not use all 
of their Federal grants and loans available to them first. Do 
any of you have recommendations about what we can do, or what 
you're doing now to make sure that students know to take 
advantage of much more economical loans, for them, from the 
Federal programs?
    I'll start with--try to keep it to 1 minute, if you can--
Mr. Nassirian, and I'll just go down the line, and I'll close 
with you, Ms. Miller.
    Mr. Nassirian. Proper disclosures would be first and 
foremost. I think the committee also has jurisdiction on--at 
the very least--on title IV participating institutions to make 
it a requirement, that before they can package any other form 
of aid, that they ought to ensure that the least expensive aid 
is packaged first. That would be a very constructive step that 
the committee does have jurisdiction to take.
    Beyond that, Congress as a whole, needs to act on ensuring 
that private loans are not frivolously and indifferently over-
marketed.
    Senator Brown. Thank you, and we are trying to do some of 
that in the Higher Ed bill, but good suggestions.
    Mr. Kohne.
    Mr. Kohne. I agree with Barmak, disclosure and counseling 
of parents and family, students, is key. My brother has a son 
who is a freshman at a large State University here in Ohio--
it's not Ohio State--but it's a direct loan school. After he 
filled up his FFELP eligibility, they were immediately directed 
toward a very high-cost private loan. They weren't even told he 
could take out a PLUS loan, for example, and I just thought 
that was incredibly bad service on the part of the school.
    As Barmak said, full disclosure, and counseling of these 
people so that they understand their options, at least, is 
first and foremost.
    Senator Brown. Fortunately, your nephew has an uncle that 
knows a lot about this.
    Mr. Kohne. Right.
    Senator Brown. Ms. Hart. Your thoughts.
    Ms. Hart. We think that the--in addition to agreeing with 
my fellow testifiers about disclosure--that having the 
financial aid process available earlier to students, we're very 
aggressively pursuing with the Department of Education use of 
FAFSA Forecaster--and I'm well aware and appreciate the FAFSA 
simplification. The reality is, some of these extreme 
circumstances happen because the time window is so narrow for 
very needy students in the standard FAFSA process. By using the 
FAFSA Forecaster, we think needy students can get into the 
process earlier, having much more widely spread advice about 
financing options through groups like the Ohio College Access 
Network, and get information more generally--not just pressed 
to sign the bottom line on that only loan that they're offered. 
We're very enthusiastic about that facility, and then the 
ability to move that data to your FAFSA your senior year, or 
renewals being a very important component of access and better 
information to our students.
    Senator Brown. Thank you.
    Ms. Van Camp.
    Ms. Van Camp. I would agree with that, with the disclosure. 
I think it should be--I do research in food science, and so I'm 
sure you've heard about the trans fat labeling, and how it's 
revealing what's actually in the food, I think that's exactly 
what needs to happen in this process--it needs to be clear what 
all of the options are and we need to support programs like 
Tally just mentioned, that educate--not only the students, but 
also their families. Especially for first-generation students 
that are trying to break this cycle--education is the problem. 
They're not educated about what their options are, and so the 
cycle continues.
    Any programs that you can support that help overcome those 
obstacles would be phenomenal.
    Senator Brown. Thank you, Ms. Miller. Any thought?
    Ms. Miller. Yes, definitely, because I remember hearing 
about the PLUS loans, but I was completely on my own, so I know 
that other--when you're pretty much looking at all of your 
options to fund your education, anything--any grant--looks 
absolutely delicious. Anything to open opportunities for even 
grants, on various levels, for all types of students from 
different incomes and different backgrounds.
    Another thing is, entrance and exit counseling for loans is 
very skim. I think when you first sign up they say, you know, 
``You need to watch this video,'' and it's a very vague outline 
of what, really, your responsibilities are, and how loans--even 
down to their disbursement, like when you receive them--it can 
be very confusing when you first get involved with taking out a 
loan, if you've never had that experience.
    I would definitely say disclosure, entrance and exit 
counseling for loans, and more grants, definitely.
    Senator Brown. Good.
    Thank you all. Thank you very much for your insight and 
your candor. All of this will be in the congressional hearing 
record and the committee testimony which you gave today, which 
will be a public document.
    Thank you, again, Dean Rodgers, for hosting this, and all 
of you that are here today. If you have follow-up comments or 
anybody watching has thoughts they want to share with the 
committee or with me, be in touch with Will Jawando, sitting 
behind me. He is based in Washington, but will be here for a 
while today, and then back in Washington, get in touch with any 
of us.
    I thank you all for joining us, and the committee is 
adjourned.

    [Whereupon, at 11:46 a.m. the hearing was adjourned.]

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