Mr. Chairman and Members of the Committee.

On behalf of the National Association of Student Financial Aid Administrators (NASFAA), I am pleased to offer this statement. I am Dr. Philip Day, President and CEO of NASFAA. Formed more than 40 years ago, NASFAA represents student financial aid administrators at some 3,000 postsecondary institutions across the nation.

Introduction

Our association illustrates the diversity of our higher education enterprise with members from private and public institutions, community colleges, four-year schools, proprietary schools, and graduate/professional institutions. At these schools, NASFAA represents approximately 12,000 financial aid professionals who are dedicated to helping families apply for and receive the funds they need to send their students to college. Each year, financial aid professionals help more than 16 million students receive funding for postsecondary education. Given the complexity of the state, federal, and institutional aid programs, it is necessary to have someone with that kind of expertise guiding students and families through the process. Our members are dedicated professionals who desire nothing more than to provide the needed funds so that our students’ dreams are fulfilled with a quality education without saddling them unmanageable debt burdens if we can avoid that, given very tight financial aid budgets available from all sources at our schools.

As the former Chancellor of the City College of San Francisco, I am fully knowledgeable about and sensitive to the reality of the incredible obstacles faced by many students and parents when pursuing their higher education goals. This especially is true for students from low-income families who rely on federal financial aid, including loans, to overcome financial barriers. Troubles in the capital market are threatening students' access to federal loans. NASFAA is concerned that if too many FFELP loan providers leave the program, other banks and non-profit loan providers will not have the capital, capacity, or infrastructure to fill the credit needs for all students. Low-income students, who are the least able to find alternatives, will be the first to face an inability to secure loans.

On behalf of NASFAA I want to express my thanks for this Committee’s hearing on the loan access situation; it comes at an opportune time. The peak federal student loan lending season will soon begin. Students and schools need operational solutions in place to avert a potential crisis in federal student loan access. With luck, confidence and rationality may return to the market making moot any need to ever utilize alternative safety nets. But, the potential for an access problem is real and we urge Congress to act to provide any and all safety nets that may be necessary so that no borrower is denied access to a federal student loan.

From our perspective, three safety nets should be put in place to prevent disruption to students’ educational plans in the event of a major loan access problem: 1) federal intervention to provide liquidity in the financing markets relied upon by many FFEL lenders; 2) a Direct Loan program prepared to handle a sharp increase in loan volume; and 3) a Lender of Last Resort (LLR) program structured to eliminate administrative obstacles to students.

Liquidity

The first leg of our three-part safety net system is restoring liquidity to the student loan market. Chairman Dodd, it is in ensuring liquidity that your Committee would be most helpful.This Committee has jurisdiction and should report legislation to the Senate floor and shepherd its passage, clarifying the responsibilities of federal banking entities so that sufficient liquidity is available and no student is denied a federal loan.

The well-reported collapse of the auction rate securities market, combined with other factors, has rendered over 45 FFEL loan providers consisting of 12 percent of loan volume unable to make or purchase new FFEL loans. Action should be taken now to provide liquidity to the loan providers impacted by the collapse of this market. Doing so will not only provide the most seamless solution to assuring loan availability to students this fall, but will also minimize the risks inherent in the LLR program failing or the Direct Loan program being unable to handle volume demands that might be placed on it.

While we (and others) have stated publicly that we know of no student who has been denied a loan to date, we also know that the critical demand for access to such loans occurs in the late spring through mid-summer. For community college students that period could extend through Labor Day. Accordingly, NASFAA has been closely monitoring events and we are very concerned about recent developments. We believe that students’ educational plans for this fall could be at risk if corrective steps are not planned, tested, and implemented.

In light of recent events, NASFAA does not believe or accept as credible statements by a variety of officials and observers that suggest a loan access problem is highly unlikely. As you know, a growing number of FFELP loan providers have been announcing suspension or termination of their lending programs, including bank lenders. Every day is seems the media reports more and more lending institutions leaving or suspending federal student loan operations.

Although NASFAA members hope a widespread loan access problem does not materialize and that currently authorized responses to loan access problems, such as LLR and reliance on the Direct Loan program, might meet a loan access problem, it is prudent for Congress to take additional steps to make sure that no student faces disruption to their educational plans due to failures in the student loan programs. It is for this reason that NASFAA endorses additional liquidity being provided to FFEL loan providers that are now unable to secure financing to make new loans due to well-publicized failures in the auction rate securities market.

As you know, Mr. Chairman four different approaches to providing liquidity to FFEL loan providers have been proposed by a variety of parties. Chairman Kennedy has proposed a "secondary market of last resort." Senator Kerry has proposed new authorities for the federal home loan banks to provide immediate liquidity to loan providers and to expedite the restoration of investor confidence in the financing markets. And various parties have proposed that the Federal Financing Bank or the Federal Reserve engage in similar activities.

It is beyond the expertise of NASFAA to sort through these options but we recommend that one or more of them be adopted in order to supplement LLR and Direct Loans as solutions to the problem. In particular, I would encourage you to take a close look at Senator Kerry's bill S. 2847, which might represent the best opportunity to get liquidity to FFEL loan providers who need it in time to meet peak demand for FFEL loans for the 2008-09 academic year.

Direct Loans

The second leg of our three-part safety net system is the Direct Loan program. The Department of Education has assured schools that the Direct Loan program will be a viable option for any institution that is not able to receive FFELP loans. We are also concerned about the logistics of numerous institutions moving en masse and quickly to the Direct Loan program while providing uninterrupted service to students. The Department should start the process now of determining how applications for participation in Direct Loans can be expedited, how greatly expanded training opportunities can be created, and how other assistance might be provided to help schools address the human resources, systems conversion, and financial challenges of making a rapid change from the FFEL program to Direct Lending. We understand that the Department is confirming with its Direct Loan servicer that it has sufficient capacity to handle the increased loan volume. Another step may be use in the Direct Loan Program of the CommonLine processing system, which is a set of standard file formats and protocols for transmitting student loan applications and guarantees.

Lender of Last Resort

The third leg of our three-part safety net system is Lender of Last Resort authority found in the Higher Education Act of 1965. Utilizing LLR as a backstop for students who are unable to borrow is an important step to ensuring access to loans. However, we are concerned that LLR is relatively untested, and its requirement that borrowers may need to prove they were turned down by up to two lenders is an additional barrier for students trying to pay for college. NASFAA supports allowing institutions to certify that there is a loan access problem at the institution, so borrowers will not bear this additional burden. We are pleased that Chairman Kennedy has introduced, and his Committee soon will be considering, S. 2815, The Strengthening Student Aid for All Act. We are pleased S. 2815 would, upon the request of a postsecondary institution, allow the Secretary to designate it for participation in their State’s LLR program.

Promoting Ethical Student Lending and Wise Borrowing

Mr. Chairman, I would be remiss if I did not again acknowledge your leadership and that of Senators Shelby, Kennedy, and Enzi is promoting new rules to assure ethical marketing of both federal and non-federal student loans. In particular, NASFAA is pleased that major parts of your legislation on this subject have been adopted as Title X of the pending House version of legislation to reauthorize the Higher Education Act. We understand that the conference agreement on this bill is likely to include your ideas. That is good news for student and parent borrowers.

NASFAA also believes that student debt is a problem; everything that can be done to prevent over-borrowing, especially over- and unnecessary borrowing of non-federal loans, should be done. In this regard, I note that NASFAA has proposed school certification of non-federal student loans. We hope this is adopted as part of the higher education reauthorization bill and believe that this provision will represent a small but important step in addressing the student debt issue.

NASFAA notes that Senator Kennedy's bill includes a further increase in the maximum Pell Grant. We enthusiastically embrace this increase. We also support the expansion of unsubsidized Stafford Loans in the bill to enable students unable to secure an affordable non-federal student loan to get at least part of the funds they need from that source. An additional aspect of preventing student over-borrowing is making borrowing less burdensome for parents. We are pleased that Senator Kennedy’s bill includes a provision that would allow parents to defer PLUS loan payments while their student is enrolled in postsecondary education.

Finally, NASFAA supports the ongoing efforts of this Committee to expand financial literacy and education. Anything that empowers young people to deal with the challenges of handling debt and personal budgeting is welcome in an era where these challenges appear to be expanding.

Conclusion
In sum, Mr. Chairman, we congratulate your Committee on holding this oversight hearing and we urge effective and timely legislation be reported to the Senate floor. While we believe we must have in place legislative solutions providing guidance and tools for federal agencies to use to avert any credit crisis, it is NASFAA’s fervent hope that such tools may never be used. Indeed, the very fact that the Congress puts into place safety nets may be enough to restore confidence in the federal loan system, making the use of such safety nets moot.

Thank you for considering my concerns and for your Committee’s continued efforts in ensuring that student loans are available this fall. I urge you to contact me with any questions or requests.