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 on 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?