June 06, 2007

Opening Statement of Chairman Chris Dodd - Hearing on “Paying for College: The Role of Private Student Lending.”

The Committee will please come to order. This morning, the Committee examines the role of private student lending in keeping college affordable and accessible. I want to thank Attorney General Cuomo and our other witnesses for their appearance today. I can think of no more important topic that this Committee can address at this particular time. Our nation – and our world -- is growing more complex and interconnected by the day. Never has higher education been more crucial to the success of our people and our country. If our children are to achieve their highest aspirations, and if our nation’s economic backbone is to continue to grow strong, then we must ensure that the financial doors of higher education remain open for all who have the desire and ability to walk through them. Today, 60 percent of the new jobs being created by our economy require at least some post-secondary education. Compare that to a half-century ago, when only 15% of new jobs required some amount of college. Yet, at a time when higher education has never been more important, in a very real sense it has never been more difficult for many families to afford. Over the past two decades or so, the cost of attaining a college degree has risen at approximately twice the rate of inflation. That is a staggering fact that has imposed a staggering burden on lower- and middle-income families in our nation. Today, the average cost of attending a public university is about $13,000 per year. The average cost of attending a private university is more than double that -- $30,000 per year, with some schools costing as much as $50,000 per year. As the father of two young daughters, I am not making plans to retire any time soon. During that same period of time, the federal government’s commitment to student financial aid has waned in relation to the rising cost of a college diploma. Federal aid in the form of grants and federal loans has failed miserably to keep up with rising costs. By some estimates, the national gap between the cost of tuition and available aid is approximately $120 billion – and growing. This college affordability gap leaves many would-be students with few options: to give up their dream of pursuing a higher education degree; to rely on their parents for financing their educational expenses; or to seek out alternative sources of financing their higher education – primarily through the form of private educational and “direct-to-consumer” loans. Unlike federal student loans, private loans are not guaranteed by the federal government, and while guaranteed student loans carry a rate of no more than 6.8%, there are no limits on the interest rates and fees private lenders can charge. Some have variable rates of up to 20%. Generally, the underwriting for private education loans is similar to that used for other forms of consumer credit. That means that student borrowers, who usually have little to no credit history, poor credit scores, or no parental co-signer or whose parents have a poor credit history, will typically pay higher rates than those with a good credit history or those with a parental co-signer with good credit history. In some regards, this model runs counter to the longstanding federal purpose of student aid – targeting low-cost financial assistance to students with the greatest needs and those from the humblest of backgrounds. That said, there’s no doubt that private loans play a critical and needed role in providing students with the ability to finance college. But while beneficial, little is known about the private student loan market. We look forward to learning more about this market at today’s hearing, which will focus on an array of issues related to the growth of the private loan market, its oversight and the role private lending plays as part of the broader financial aid landscape. I also look forward to learning more about how private lending practices, products and services impact student borrowers and their families and hearing from our witnesses about potential areas of concern within the private loan market. Since the beginning of the year, there has been a consistent purpose to many of this Committee’s hearings: specifically, how to better ensure that financial tools like sub-prime mortgage lending and credit cards can be utilized by working Americans to build, rather than diminish, wealth. Today’s hearing is in keeping with that vital purpose. The private student loan market is growing at an astronomical rate – by 1,200% percent over the past decade – and private student loans are projected to overtake federal educational loans as the largest percentage of student lending within the next decade . We have an obligation in this Committee to ensure that this market is functioning effectively and efficiently – for lenders and borrowers alike. We must act – including legislatively if need be – to ensure that young people of this country have an opportunity to rise as high as their talents will take them. And we must not allow young, unsophisticated borrowers and their families to be subjected to practices that deny them the ability to obtain credit on fair, transparent and reasonable terms. Otherwise, countless students will suffer serious and irreversible harm to their financial futures – and our nation’s economic and social future will suffer, as well. One of the greatest contributions made by our government to its people has been our support of higher education. Laws like the GI Bill, the National Defense Education Act, and the Higher Education Act of 1965 stand as one of the great bipartisan achievements of the past half century in terms of opening the doors of higher education to hard-working Americans and their children. The results of this commitment have been unmistakable and remarkable. In 1955, 3 million young people attended a college or university. By 1980, that number had risen to 12 million. Today, it stands at 18 million. And our nation’s economy during the past half century has not coincidentally become the strongest and most prosperous in the history of the world. Yes, college education is expensive. But if you think education is expensive, try ignorance. Our nation can ill-afford not to support its children and their families as they work to achieve prosperity and economic security for themselves and our nation. I am now pleased to recognize Senator Shelby for any opening statement he wishes to make. The Committee will please come to order. This morning, the Committee examines the role of private student lending in keeping college affordable and accessible. I want to thank Attorney General Cuomo and our other witnesses for their appearance today. I can think of no more important topic that this Committee can address at this particular time. Our nation – and our world -- is growing more complex and interconnected by the day. Never has higher education been more crucial to the success of our people and our country. If our children are to achieve their highest aspirations, and if our nation’s economic backbone is to continue to grow strong, then we must ensure that the financial doors of higher education remain open for all who have the desire and ability to walk through them. Today, 60 percent of the new jobs being created by our economy require at least some post-secondary education. Compare that to a half-century ago, when only 15% of new jobs required some amount of college. Yet, at a time when higher education has never been more important, in a very real sense it has never been more difficult for many families to afford. Over the past two decades or so, the cost of attaining a college degree has risen at approximately twice the rate of inflation. That is a staggering fact that has imposed a staggering burden on lower- and middle-income families in our nation. Today, the average cost of attending a public university is about $13,000 per year. The average cost of attending a private university is more than double that -- $30,000 per year, with some schools costing as much as $50,000 per year. As the father of two young daughters, I am not making plans to retire any time soon. During that same period of time, the federal government’s commitment to student financial aid has waned in relation to the rising cost of a college diploma. Federal aid in the form of grants and federal loans has failed miserably to keep up with rising costs. By some estimates, the national gap between the cost of tuition and available aid is approximately $120 billion – and growing. This college affordability gap leaves many would-be students with few options: to give up their dream of pursuing a higher education degree; to rely on their parents for financing their educational expenses; or to seek out alternative sources of financing their higher education – primarily through the form of private educational and “direct-to-consumer” loans. Unlike federal student loans, private loans are not guaranteed by the federal government, and while guaranteed student loans carry a rate of no more than 6.8%, there are no limits on the interest rates and fees private lenders can charge. Some have variable rates of up to 20%. Generally, the underwriting for private education loans is similar to that used for other forms of consumer credit. That means that student borrowers, who usually have little to no credit history, poor credit scores, or no parental co-signer or whose parents have a poor credit history, will typically pay higher rates than those with a good credit history or those with a parental co-signer with good credit history. In some regards, this model runs counter to the longstanding federal purpose of student aid – targeting low-cost financial assistance to students with the greatest needs and those from the humblest of backgrounds. That said, there’s no doubt that private loans play a critical and needed role in providing students with the ability to finance college. But while beneficial, little is known about the private student loan market. We look forward to learning more about this market at today’s hearing, which will focus on an array of issues related to the growth of the private loan market, its oversight and the role private lending plays as part of the broader financial aid landscape. I also look forward to learning more about how private lending practices, products and services impact student borrowers and their families and hearing from our witnesses about potential areas of concern within the private loan market. Since the beginning of the year, there has been a consistent purpose to many of this Committee’s hearings: specifically, how to better ensure that financial tools like sub-prime mortgage lending and credit cards can be utilized by working Americans to build, rather than diminish, wealth. Today’s hearing is in keeping with that vital purpose. The private student loan market is growing at an astronomical rate – by 1,200% percent over the past decade – and private student loans are projected to overtake federal educational loans as the largest percentage of student lending within the next decade . We have an obligation in this Committee to ensure that this market is functioning effectively and efficiently – for lenders and borrowers alike. We must act – including legislatively if need be – to ensure that young people of this country have an opportunity to rise as high as their talents will take them. And we must not allow young, unsophisticated borrowers and their families to be subjected to practices that deny them the ability to obtain credit on fair, transparent and reasonable terms. Otherwise, countless students will suffer serious and irreversible harm to their financial futures – and our nation’s economic and social future will suffer, as well. One of the greatest contributions made by our government to its people has been our support of higher education. Laws like the GI Bill, the National Defense Education Act, and the Higher Education Act of 1965 stand as one of the great bipartisan achievements of the past half century in terms of opening the doors of higher education to hard-working Americans and their children. The results of this commitment have been unmistakable and remarkable. In 1955, 3 million young people attended a college or university. By 1980, that number had risen to 12 million. Today, it stands at 18 million. And our nation’s economy during the past half century has not coincidentally become the strongest and most prosperous in the history of the world. Yes, college education is expensive. But if you think education is expensive, try ignorance. Our nation can ill-afford not to support its children and their families as they work to achieve prosperity and economic security for themselves and our nation. I am now pleased to recognize Senator Shelby for any opening statement he wishes to make.