In September,
we reported on the U.S. House of Representatives passing the
Student Aid and Fiscal Responsibility Act and sending it on to the Senate, where many observers expected it to move quickly, as it did in the House. The New York Times
reports this morning that the bill has bogged down in the Senate thanks to aggressive lobbying by private lenders and the Senate's changing politics.
The bill would end the role banks and and other private lenders play in making student loans. Students now can borrow money from private lenders through the Federal Family Education Loan Program, which provides subsidies and guarantees to banks and other lenders. Students or their families can also borrow directly from the U.S. government's Federal Direct Loan Program. The bill would fold all lending into the Direct Loan program, leaving the private sector with a much-reduced servicing role.
The bill would also redirect the anticipated $87 billion in savings over 10 years from ending the private-lender subsidies to more funding for Pell grant scholarship and Perkins loans that students can get through their institutions.
The student loan industry, led by Sallie Mae, the largest student-lending company, was not about to let that $87 billion go without a fight, says the Times.
Sallie Mae has plenty to lose if the bill goes through. The company spent $8 million on lobbying last year, the Times says. It originated
$21.7 billion in federally-subsidized loans in 2009, compared to $3.2 billion in private loans last year. The company held town-hall meetings, circulated petitions, and button-holed legislators to stress the legislation's
impact on jobs. Sallie Mae says it stands to lose some 2,300 jobs if the bill becomes law.
The Times quoted anonymous sources who say that some Senators are wavering, particularly fiscal conservatives and those in states where the lenders operate, including Florida, Illinois, Nebraska, New York, and Pennsylvania. The industry claims the bill amounts to a federal takeover of the student loan industry, an argument that gets the attention of conservatives. Adding one more Republican senator in Scott Brown of Massachusetts helps the lenders' cause as well, says the Times.
Education Secretary Arne Duncan told the Times that they anticipated the industry's push-back and the administration is stepping up its own lobbying in the Senate. In his State of the Union address last week, President Obama told cheering Democrats, "To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans." Republicans remained silent during that part of the speech.