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Graduating from college is a great feeling. Not so great: being saddled with $23,200 in student loans, the average debt owed by graduates of the class of 2008, according to the Project on Student Debt.
Reforming the for-profit student loan system, which allows finance giants like Virginia-based Sallie Mae to make virtually risk-free returns thanks to government subsidies, was a top priority of President Obama. His idea, supported by most Democrats, was to take out the middle-man: Instead of subsidizing private lenders, the feds would completely take over origination of student loans.
The result: The Student Aid and Fiscal Responsibility Act, which the Office of Management and Budget estimated would save over $80 billion over 10 years (critics point out the number is inflated, because it didn't include money lost from defaults; but that's neither here nor there, because the government currently absorbs private losses anyway). Savings would be plowed back into Pell Grants -- much easier on students in the long-term -- and other higher education initiatives.
But as The New York Times writes today, this week six senate Democrats have threatened to derail the Act, writing in a letter to senate majority leader Harry Reid that "provisions of contemplated student lending reform that could put jobs at risk."
The letter was signed by Democratic Senators Thomas R. Carper (DE), Blanche Lincoln (AR), Ben Nelson (NE), Bill Nelson (FL), Mark Warner (VA) and Jim Webb (VA).
The senators' back-stepping, which likely scuttles the possibility of passing the Act with the filibuster-proof appropriations bill, comes after over a year of aggressive lobbying by heavyweights in the corporate loan industry. Sallie Mae alone spent $3.48 million on lobbying last year leading an all-out assault by industry reps claiming up to 35,000 jobs would be lost.
But proponents of reform have steadily hacked away at the bank's claims. First, it turns out the total jobs in student loans is closer to 30,000. But most importantly, the part of the industry the bill affects -- loan origination -- employs the fewest workers. According to Ben Miller at The Quick and the Ed (via Jane Hamsher):
Why are the senators doing this? The first place to look for answers is the political muscle and deep pockets of the student loan industry. Between 2005 and 2010, Nebraska-based Nelnet has shoveled $63,100 to Sen. Nelson's campaigns.
Virginia senators Warner and Webb have to worry about Sallie Mae based in Reston, which employs 8,000 workers in Reston and has shown its willingness to play political hardball. Florida is also home to several leading student loan operations in the primary and secondary markets, and Sen. Carper's Delaware is ground zero for financial services outside of New York.
The more puzzling case is Sen. Lincoln of Arkansas. Her position on the Senate Finance Committee has made her a magnet for banking and finance campaign dollars ($246,700 for the 2010 cycle). But a search of her campaign contributions show no special ties to the student lending industry.
So how is siding with big lenders driving students into debt going to help her back home in Arkansas, which ranks in the bottom 15 states nationally for number of college-age youth getting a university degree?
Graduating from college is a great feeling. Not so great: being saddled with $23,200 in student loans, the average debt owed by graduates of the class of 2008, according to the Project on Student Debt.
Reforming the for-profit student loan system, which allows finance giants like Virginia-based Sallie Mae to make virtually risk-free returns thanks to government subsidies, was a top priority of President Obama. His idea, supported by most Democrats, was to take out the middle-man: Instead of subsidizing private lenders, the feds would completely take over origination of student loans.
The result: The Student Aid and Fiscal Responsibility Act, which the Office of Management and Budget estimated would save over $80 billion over 10 years (critics point out the number is inflated, because it didn't include money lost from defaults; but that's neither here nor there, because the government currently absorbs private losses anyway). Savings would be plowed back into Pell Grants -- much easier on students in the long-term -- and other higher education initiatives.
But as The New York Times writes today, this week six senate Democrats have threatened to derail the Act, writing in a letter to senate majority leader Harry Reid that "provisions of contemplated student lending reform that could put jobs at risk."
The letter was signed by Democratic Senators Thomas R. Carper (DE), Blanche Lincoln (AR), Ben Nelson (NE), Bill Nelson (FL), Mark Warner (VA) and Jim Webb (VA).
The senators' back-stepping, which likely scuttles the possibility of passing the Act with the filibuster-proof appropriations bill, comes after over a year of aggressive lobbying by heavyweights in the corporate loan industry. Sallie Mae alone spent $3.48 million on lobbying last year leading an all-out assault by industry reps claiming up to 35,000 jobs would be lost.
But proponents of reform have steadily hacked away at the bank's claims. First, it turns out the total jobs in student loans is closer to 30,000. But most importantly, the part of the industry the bill affects -- loan origination -- employs the fewest workers. According to Ben Miller at The Quick and the Ed (via Jane Hamsher):
Loan origination in its most basic form is the process of obtaining the money for student loans and transferring those funds to borrowers or to their institutions. This is a very inexpensive activity. According to information from the U.S. Department of Education, its complete cost of originating a Direct Loan last year was around $5.50. That figure includes around $1.50 in administrative and other expenses.Sallie Mae and the big loan companies would still be able to service the loans, which is where most of the money -- and jobs -- are. Nelnet, Sen. Nelson of Nebraska's biggest contributor, saw their servicing revenues go up 13% last year after getting a contract through the Department of Education.
Why are the senators doing this? The first place to look for answers is the political muscle and deep pockets of the student loan industry. Between 2005 and 2010, Nebraska-based Nelnet has shoveled $63,100 to Sen. Nelson's campaigns.
Virginia senators Warner and Webb have to worry about Sallie Mae based in Reston, which employs 8,000 workers in Reston and has shown its willingness to play political hardball. Florida is also home to several leading student loan operations in the primary and secondary markets, and Sen. Carper's Delaware is ground zero for financial services outside of New York.
The more puzzling case is Sen. Lincoln of Arkansas. Her position on the Senate Finance Committee has made her a magnet for banking and finance campaign dollars ($246,700 for the 2010 cycle). But a search of her campaign contributions show no special ties to the student lending industry.
So how is siding with big lenders driving students into debt going to help her back home in Arkansas, which ranks in the bottom 15 states nationally for number of college-age youth getting a university degree?
Why are payments to private lenders going down? Congress is extending the bill to take over private loans to schools from students. Loans can be forgiven through programs sponsored by the federal government. Students can also pay schools, private loans, and government loans through work programs at CNCS, a federal agency paying those serving. Other agencies give free schooling(Masters) after service like Peace Corps in an arrangement with PC. The schools pay for the education.
Clinton wants a free school for those who promise to do federal service, like foreign service, but the US government is taking over the private loans and providing new loans with forgiveness or payment after federal service.
Students are caught in the middle as private loans are being bought and taken over by the federal government. It is harder to get out of a private loan than a federal loan as long as the students to fedral service it is easier. After the loans are all bought up and the private loans are few it will make more sense to do federal service to pay the loans that the federal government gave. Eventually the education will be free if the students do enough federal service or promise to take jobs with the federal government like foreign service or something after CNCS.
It will be smarter to pay loans with service and the next logical step is to make this free as long as service is promised. It will also be harder to pay federal loans without service and, if Hillary and dems don't like; you it may be impossible.
March 11, 2010 2:39 PM | Reply
If these Dems can't get this long-overdue, no-brainer reform over the goal line from the 1-inch line, then what hope do we have for the other dozen or so reforms this country so desperately needs??
March 11, 2010 2:51 PM | Reply
Lincoln is afraid of her own shadow. Fortunately, she'll only be a Senator till January. If Harry Reid can't swing the caucus on this softball, he doesn't deserve to be Majority leader, either.
March 11, 2010 3:17 PM | Reply
I am running for Congress from Lincoln, Nebraska--home of the nation's number two private student loan company, Nelnet,--as a student loan reform candidate.
In my travels, I've learned that many Nebraskans are deeply disappointed by both Senator Ben Nelson (D-Ne) and Rep. Jeff Fortenberry's (R-Ne) opposition to President Obama's valiant effort to reform the controversial at best, corrupt at worst, private student loan industry.
Like more and more Americans, Nebraskans are becoming wise to the fact that the nexus between politicians, uber-wealthy private student loan executives and Chancellors has allowed the cost of college to skyrocket five times the rate of inflation.
Who has done extremely well during this period when the cost of college has soared: for starters, certainly not American students and their families.
Who has benefited: politicians, Chancellors/Presidents and wealthy student loan executives...the three groups that make up the status quo with respect to student loan reform and the private student loan industry.
Politicians maintain the status quo-- one that saddles 20/30/40-something hard-working American students and their families with crushing, lifetime debt--because their campaigns are financed, in large part, by a powerful industry that makes its money on the backs of American families.
Go to www.IvyHarperforCongress2010.com to learn more about how I plan to break up the political/corporate/college clique that is trampling the 1862 Morrill/Land Grant Act, the visionary legislation that guaranteed a debt-free education to each state's residents.
March 12, 2010 12:14 PM | Reply
This post really does not make sense????
The proposal is about using federal money in a manner that is most cost-effective. We really do not need private business in the middle which is the current system. It costs both taxpayers and students more money without providing any additional value.
We could hire the employees working for these private businesses as government employees to administer the new system.
The savings comes in the form of (1) not paying dividends to shareholders since government does not pay dividends or have shareholders, (2) advertising and marketing which would no longer be needed and (3) executive salaries iat private companies are much higher than they are in government.
Personally, I benefit from (2) above as owner of College Marketing.com but it is better for taxpayers and students if I get hit a little on my personal income.
Sincerely,
Stephen Crockett
Host, Democratic Talk Radio
President, College Marketing.com
March 14, 2010 8:50 AM | Reply
By the way, my office is in Delaware. Most residents of Delaware support this reform.
Stephen Crockett
March 14, 2010 8:53 AM | Reply