nelnet

According to today's New York Times, private lenders are gearing up to fight Obama's proposal to end the Family Federal Education Loan (FFEL) program, which subsidizes corporate lenders at the highest possible interests rates, in favor of the more efficient (and cheap) Direct Loan program run by the government:

The private student lending industry and its allies in Congress are maneuvering to thwart a plan by President Obama to end a subsidized loan program and redirect billions of dollars in bank profits to scholarships for needy students.

The plan is the main money-saving component of Mr. Obama’s education agenda, which includes a sweeping overhaul of financial aid programs. The Congressional Budget Office says replacing subsidized loans made by private banks with direct government lending would save $94 billion over the next decade, money that Mr. Obama would use to expand Pell grants for the poorest students.

But the proposal has ignited one of the most fractious policy fights this year.

One one side are the corporations, who don't want to lose out on their government dole (even as they openly admit that private capital and a true free market won't provide adequate student aid via lending), Republicans who see this as an unnecessary expansion of government (even though the government is already massively subsidizing the private sector in this area), and Democrats who receive large donations from private lenders or whose states house the actual lending companies.

The companies themselves have already taken out some big guns, hiring lobbyists with deep professional (and familial) ties to the administration:

Because it would make spending on Pell grants mandatory, limiting Congressional control, powerful appropriators are balking at it. Republicans say the plan is proof that Mr. Obama is trying to vastly expand government. Democrats are divided, with lawmakers from districts where lenders are big employers already drawing battle lines.

At the same time, the private loan industry, which would have collapsed without a government rescue last year, has begun lobbying aggressively to save a program that has generated giant profits with very little risk.

“The administration has decided that it wants to capture the profits of federal student loans,” said Kevin Bruns, executive director of America’s Student Loan Providers, a trade group that is fighting Mr. Obama’s plan.

To press its case, the nation’s largest student lender, Sallie Mae, has hired two prominent lobbyists, Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration.

Here's what you need to know on this issue: The President's plan will save billions over the next decade by cutting out a middle man that isn't willing or able to lend money without massive government support in the first place. Money saved by cutting out those middle men will be funneled back into the Pell Grant program, providing more grant aid to need students without decreasing the availability of loans to other students. Contrary to the assertions of Republicans, the program doesn't kill private student lending, it merely removes the government subsidies those companies have received for decades. Conservatives who support government efficiency and a reduction in wasteful spending should support the President's proposal. Furthermore, those private lending companies will still receive government contracts to pay for back-end services in administering and tracking loans:

At the Wilkes-Barre event, Mr. Lord of Sallie Mae acknowledged his industry’s reliance on the government. “I don’t see private capital financing student loans, certainly any time soon,” he said.

Even as lenders fight the president’s plan, Sallie Mae and others are bidding for work that will remain if it is adopted — contracts for loan servicing and other back office operations.

The president’s plan would use the money from direct lending to help increase Pell grants and make them mandatory, with annual increases tied to inflation, providing a much-needed measure of certainty for students.

Here's a list of the top recipients of campaign donations from the private lending industry. These are the Senators most likely to stand in the way of Obama's reforms on this issue:

The Hill reports that a bipartisan group of senators are grumbling about some of President Obama's proposed reforms to higher education student aid programs. Specifically, they are opposed to Obama's proposal to effectively end the Family Federal Education Loan program and channel all government lending to students through the Direct Loan program.

If you are unfamiliar with the FFEL and Direct Loan programs, the difference is fairly simple. FFEL is basically a government subsidy to the private loan industry, while the Direct Loan programs provide the same service to students at a lower cost to the taxpayers. As an excellent primer from the Center for American Progress explains:

FFEL is a no-lose proposition for private lenders. The government guarantees repayment in the case of default and a predetermined profit margin, paying a subsidy if the student interest rate falls below a set level. Therefore, it is not surprising that the largest private lender in FFEL – Sallie Mae – is also one of the most profitable companies in the country. In fact, Sallie Mae was recently identified as the second most profitable company in the United States with over 36 percent return on revenues – compared to a median return of 4.6 percent for the nation's 500 biggest companies.

Direct Loans are a better deal for the taxpayers. First, they ensure that the interest is returned to the Treasury, rather than subsidizing banks working as middlemen. Second, they provide the necessary capital at a lower cost. When a bank makes a student loan, it borrows money on the open market and then lends it out to the customer. The federal government does the same thing. But the government's cost of borrowing is much lower than a bank's, because the government borrows against U.S. Treasury bills backed by the "full faith and credit" of the United States. Former Bush Council of Economic Advisors Chief Lawrence Lindsey made this point in 1995, stating that "taxpayer cost is less for direct lending largely because the government can obtain capital less expensively through the sale of government securities than the market rates it must pay to support a system of loan guarantees."

The FFEL and Direct Loan systems deliver the same loans at the same interest rates to students, and colleges choose in which program to participate. But every time a school opts for FFEL, the taxpayer loses because the costs to the government far exceed the costs of Direct Loans.

So who are these Senators that oppose Obama's shift from the FFEL to the Direct Loan program? Mostly they are recipients of large campaign contributions from the two largest private student lending corporations: Sallie Mae and Nelnet.

From The Hill:

Rep. Buck McKeon (Calif.), the top Republican on the House Education and Labor Committee, received $20,000 in donations from private lenders Sallie Mae and Nelnet, the most of any lawmaker during the last campaign cycle.

McKeon argues Obama’s proposal is a “government takeover” of the $85 billion student aid industry that would only grow the country’s budget deficit. The Republican has supported private lending firms because they have provided students with more choices and serve as a “critical backstop” for the public lending program, said Alexa Marrero, spokeswoman for Republicans on the House Education and Labor Committee. [...]

While the Obama administration expects that the shift from subsidized private loans to direct federal lending would save taxpayers $4 billion a year, McKeon has derided the plan as a “government takeover” that would add to the federal deficit and limit students’ choices.

You have to love conservatives. They're all for free and unfettered markets, supposedly because they are more efficient than government programs and because they are opposed to wasteful spending. Unless, of course, it endangers the business model of their supporters.

Let's be clear as to what's happening here. The Obama administration isn't trying to shut down or "take over" private lending, and they're not proposing some wildly inefficient, Rube Goldbergesque government program take the place of private lenders. What they're proposing is that the government stop paying an unnecessary and needlessly expensive subsidy to the private lending industry, and direct those savings towards the more efficient Direct Loan Program. And let's be clear, the Direct Loan Program is a far more efficient use of resources. From the CAP report:

Based on data provided in a 1999 U.S. Department of Education report on the administrative costs of each student loan program and the "subsidy" costs associated with each loan program contained in the Administration's budget for fiscal year 2005, we can estimate that direct loans cost the government approximately 69 cents per every $100 loaned or less than one penny per dollar loaned. In contrast, FFEL loans cost the government $10.51 for every $100 borrowed or a little more than 10 cents on the dollar. So the savings affiliated with opting for a Direct Loan rather than a FFEL loan are approximately $9.82 ($10.51 - $0.69) per $100 borrowed, or more than 9 cents on the dollar.

So Obama's plan will continue to provide much needed financial aid to students, but at far less cost to the American taxpayer. That's what we're talking about here, and that's what the Senators from Sallie Mae and Nelnet oppose. Fortunately it looks like they don't have too many votes on their side, and a procedural move by Steny Hoyer may make any opposition to the changes futile at best:

Though Hoyer hasn’t weighed in on the proposal, one of his aides told reporters last week that student loan reform could be attached to a budget reconciliation bill, a move that would make it easier to get through the Senate. Reconciliation measures can’t be filibustered and require only a simple majority to pass in the upper chamber. Since Obama announced his budget plan last month, a key centrist Democrat, Sen. Ben Nelson (Neb.), and several senators in the GOP leadership, including Lamar Alexander (Tenn.) and John Cornyn (Texas), have come out against the proposal for more direct government lending.

Let's hope that Hoyer, who is also a large recipient of Sallie Mae contributions, makes the right decision here and comes out in support of the bill. If not, I don't expect that Sallie Mae and Nelnet are going to take this lying down. If it gets to that, we might actually have a fight on our hands.

• How Green is your candidate? Grist will let you know with a new election '08 series and widget to deliver news directly to your blog of SocNet profile.
• Think Progress reports that Fox's Daily Show knock-off, The Half-Hour News Hour, is getting canned:
  

  The reviews for the program were consistently dismal. Its very first review, from the Orlando Sentinel, decried the “[l]aughter, of an awfully canned variety, greets all the gags. Nothing happening on screen justifies these outbursts. … If we’re lucky, we’ll never hear of this dreadful show again.” “Sometimes the humor is so heavy-handed that it seems almost like self-parody,” said the New York Times. “The 1/2 Hour News Hour is slow torture all by itself,” said the Philadelpha Inquirer.

  What the right-wing failed to grasp is Jon Stewart is funny not because he spins falsehoods but because he tells the truth.

• Student loan shenanigans continue. Nelnet is being forced to pay a $1million fine (peanuts, really) for deceptive marketing practices. This after Nebraska Attorney General Jim Bruning, who had originally "forgiven" Nelnet's fine, was revealed to have received campaign contributions from NelNet employees. The Higher Ed Watch article is ugly. Bruning goes to bat big-time for the corporate lenders, going so far as to call NY AG Cuomo's investigations into the industry (which have revealed major corruption) as an "embarassment." Bruning is the real embarassment. For any Nebraska FM readers: what can y'all do to get this joker out of office?
• The Washington Blade profiles David Hardt and Chris Anderson, the new heads of the Young Democrats, who had this to say about the future of YDA:
  

  “Right now I want to grow the organization,” he said. “We need to have better organization and communication between the national organization and local chapters. Young people make up the largest voter block and we need to raise money to reach young voters.”

  Amen.

• A blogger at Campus Progress notes that Senator Pat Leahy just wrapped up a bit piece in the new Batman movie. The blogger "doesn't know what to do with" the information, but I do - applaud it. Leahy is on the front lines right now in fighting Republican corruption in government. Yay on him for realizing that popular culture is a tool to embrace in that fight, not a pariah to attack (as some other Democrats seem to think *cough*Hillary and Lieberman*cough*).
• "Fair and Balanced" Fox News got caught editing Democratic candidate Al Franken's Wikipedia entry.
• Finally, what if the last five years were a giant Batman episode, and Dennis Kucinich a Superhero? Keep your eye out for Teen-Wolf Blitzer:
  

Cross posted at MyDD and Daily Kos.

Another update on Nelson-Burr (aka the corporate lender welfare amendment). Word is that the vote is going to be around noon today and it is going to be tight. Yesterday, Rick Enzi, ranking Republican on the Senate Education committee declared that he would vote against the amendment, potentially bringing a number of Republicans over with him. A number of Senators s are on the fence - particularly Tester on the Democratic side and Smith on the Republican side - but many of the Senators listed below don't really know anything about the amendment or how it would impact students.

Give them a call before noon today. Tell them why they should vote yes on the bill and no on the Nelson-Burr amendment. The Capitol Switchboard can be reached at (202) 224-3121.

Update:
Here's the list of swing votes who might side with Nelson and the corporate lenders over debt-ridden students:

Alexander (R - TN)
Bayh (D - IN)
Carper (D - DE)
Coleman (R - MN)
Collins (R - ME)
Hatch (R - UT)
Landrieu (D - LA)
McCaskill (D - MO)
Murkowski (R - AK)
Nelson, Ben (D - NE)
Nelson, Bill (D - FL)
Roberts (R - KS)
Tester (D - MT)
Webb (D - VA)

Call their offices and urge them to vote YES on S. 1762, and NO on the Nelson-Burr Amendment. The Capitol Switchboard can be reached at (202) 224-3121.
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Cross posted at Daily Kos and MyDD. Please recommend.

Last week, most student organizations rejoiced as the Democrats shepherded the Cost of College Reduction Act through the House of Representatives. The Bill represented the largest increase in student aid since the G.I. Bill. It accomplished this in part by cutting excess government subsidies to corporate lenders, who were fattening their wallets on the backs of debt-ridden students. Republicans tried unsuccessfully to kill the bill in the House. The Gavel had an excellent post about that fight and the bill’s passage.

The Senate version of the bill – The Higher Education Access Act of 2007 - is set to provide $17 billion in student aid to college students and recent graduates, among other provisions to further protect students. But Ben Nelson (D-NE), whose home state is also home to Nelnet, one of the biggest corporate lenders, is trying to weaken the Senate version of the bill and return $3 billion of that to the lending industry so they can continue to line their pockets on with corporate welfare.

What I’m hearing is that the cloture votes on Iraq and the DOD reauthorization are going to fail, and the Higher Education Access Act of 2007 will be brought to the floor instead, with voting to be scheduled for today or tomorrow. Right now, Republicans supposedly have 3-6 Democrats willing to side with lenders on the Amendment, so they are likely to see it pass.

Here’s what you can do:

• Call your Senator and urge them to vote YES on S. 1762, and NO on the Nelson-Burr Amendment. The Capitol Switchboard can be reached at (202) 224-3121, and the operators can tell you both who your Senators are and connect you.
• Also ask which way your Senator plans on voting. If we can find out who those 3-6 Democrats are that are supporting lender subsidies over students we can ratchet up the pressure on them.

If you find out which Democrats (besides Nelson) are in favor of the Nelson-Burr Amendment, contact me and I'll keep an updated list and post around the blogosphere.

The lenders (and Nelson’s) argument is that cuts in subsidies need to be scaled back so that lenders can offer students benefits, and that subsidy cuts will cause the loan market to consolidate and there will be less choice for students. This is bunk. The loan market is already consolidated, and less than 10% of students ever see a dime of those supposed “benefits.” Meanwhile, groups like NelNet and Sallie Mae have used those government subsidies to give outrageous benefits packages to CEOs, reap hundreds of millions in additional profits, and improperly wine and dine university officials who should be protecting the interests of students.

$3 billion could fund 588,000 Pell Grants at the maximum level of $5100. As millions of students are getting priced out of college, or saddled with unmanageable levels of debt, our government should be voting to protect and aid students, not funnel more money to corporations already reaping hundreds of millions in government subsidies and profits.