The Debated Single Holder Rule
By Amelie Mag
At the beginning of 2004, the US Congress was enmeshed in deep debate about an education bill, HR 609, also called the College Access and Opportunity Act. It was meant to extend the Higher Education Act from 1965. The most contentious aspects of HR 609 refer mainly to student aid and student loans. The financial aspects of HR 609 are very important because, perhaps counter-intuitively, finance is one of the most important dimensions of higher education in the US: college fees are extremely high and many students have to worry more about supporting themselves financially than about going through the academic chores.
One of the issues that caused most of the debate about HR 609 was because of the proposal it contains to repel the single holder rule for student loan consolidation. As college students may contract more than one college loan in order to be able to afford their expenses, one of the most helpful tools in their hands is the possibility to consolidate different loans. Until HR 609, students were only able to consolidate loans coming from the same lender, and this was called the federal single holder rule. The single holder rule allowed students who had several loans (with the same lender) to make a new deal. Under the federal single holder rule, they would be able to consolidate all loans into a new loan from the same lender, at a unique, fixed interest rate. Thus, students would get sometimes better rates and more certainty. However, these benefits derive rather from loan consolidation than from the single holder rule. That is why so many people argue in favor of HR 609 which is trying to repel the federal single holder rule.
The main criticism to the single holder rule is that it restricts the freedom of students. For an American audience, this argument against the federal single holder rule was framed in the terms of giving more consumer freedom to students. Under the single holder rule, the students could only consolidate if their loans were taken from the same lender. If HR 609 would be passed and the federal single holder rule would disappear, students would be able to consolidate loans coming from different lenders and they could “shop” for the best deal among the different lenders.
The single holder rule is usually benefic for the bigger financial institutions giving out student loans and sometimes for the government as a lending institution. Because a student contracting more loans will usually get at least one from the government or from a big corporation, knowing that the single holder rule exists for consolidation of loans would make them contract all the loans with either the government or a big corporation. The single holder rule thus acts as a prohibition in the freedom of students to look for a better deal. At the same time, the single holder rule saves the big companies from the trouble of offering too many incentives for loans. Once one of the loans is contracted with them, the next loans will ensue, in order to open up the option of loan consolidation. It is no surprise then that
the big companies offering student loans were lobbying against the repelling of the single holder rule under HR 609. Strong voices were heard supporting the senators that fought for the maintaining of the single holder rule in the new piece of legislation.
It is interesting to follow the amendments regarding the single holder rule that will be adopted in the final legislation passed by both houses. The bill was introduced by a Republican senator and it did contain the provision for repelling the single holder rule. This falls in line with the rhetoric of the current republican administration that it is trying to provide more support for education and make college more accessible for less favored categories of students. On the other hand, the same administration has severely cut funding for the student loan programs. The same administration has been consistently introducing legislation that financially favors big corporations, even in the sphere of education.
The battle for HR 609 and the elimination of the single holder rule will show the true intentions of a Republican-dominated Congress. It is less important that the cancellation of the single holder rule was included in the text of the bill. It matters more whether the cancellation of the single holder rule will be present in the final text of the law.