Student lenders protest ‘nationalization’ effort

Student lenders are mounting a final push to keep an overhaul of the industry embraced by the Obama administration and congressional Democrats out of the larger healthcare reform package.

They are doing so in part by using the same type of rhetoric critics of the healthcare bill have used, warning of a government takeover and nationalization of the lending business if Democrats win the day.

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Democrats want to end subsidies to private lenders to make loans to students, and are trying to attach the change to the healthcare bill the House may vote on this week.

The Congressional Budget Office (CBO) has estimated a savings of $67 billion over a 10-year period. That figure is down from an $87 billion earlier estimate. Democrats would use the money in part to pay for Pell grants to low-income students.

Hoping to maintain a grip on some portion of direct lending, companies such as Sallie Mae have pushed an alternative they refer to as the “community proposal” that they argue also provides significant savings.

In making their pitch, student lenders and their lobbyists simultaneously warn of a “government takeover” that would cost jobs and decrease the services available to students.

John Dean, a lobbyist at Washington Partners representing the lending industry, said the “nationalization” of the student lending business threatens services students now get that help them avoid defaulting on their loans.

Conwey Casillas, a spokesman for Sallie Mae, the biggest for-profit originator of student loans, said the alternative proposal would maintain a “competitive” student lending market.

Under the administration’s proposal, the government would lend the money directly to students, avoiding what supporters say is an unnecessary middleman.

More schools have shifted to a direct lending system in the interim on their own, which has helped to decrease the projected savings of the mandated switch, said Barmak Nassirian, of the American Association of Collegiate Registrars and Admissions Officers.

Nassirian said the administration’s reform proposal is a “vastly superior” approach to the “community plan” pushed by the industry because he believes the former will generate much more in savings that can be applied to other educational efforts.

Though most of the drama is built around the push for healthcare reform, changing the student lending landscape has also been a fiercely lobbied issue.

Sallie Mae spent $3.48 million on lobbying in 2009 and hired some prominent Democrats to help make its case, such as former Deputy Attorney General Jamie Gorelick, now a lobbyist at Wilmer Hale. It has also hired the connected Podesta Group, whose lobbying team includes several prominent Democrats.

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Not surprisingly, given the state of the economy, the lobbying campaign has focused largely on jobs. Conwey said the reform embraced by Democrats could cost 2,500 jobs at Sallie Mae. The company and other lenders have focused on districts in states where lenders are based, such as Delaware, Pennsylvania, Indiana, Virginia, Florida and Texas.

Democrats have tried to counter the industry’s opposition by arguing that their approach seeks to minimize job loss by allowing lenders to keep servicing student loans, just not originating them.

Democrats are also challenging the warning of a government takeover.

According to the House Education and Labor Committee, $8.80 of every $10 in federal student lending is backed by the taxpayer.

“There’s simply no reason to keep pumping taxpayer dollars into a broken system when the federal government can provide the same low-cost federal loans more reliably for students and at a lower cost for taxpayers,” a committee release intended to challenge the lending industry’s main arguments states.

“For months banks have been spreading misinformation about our bill in a desperate attempt to preserve a system that rewards them with billions in federal subidies at the expense of students and taxpayers,” said Rachel Racusen, a spokeswoman for the House Education committee.