Senate Democratic leaders have decided to pair an overhaul of federal student lending with healthcare reform, according to a Democratic official familiar with negotiations.
"It’s going in," said the Democratic source, in reference to the student lending measure.
But leaders may have to reverse themselves if they receive strong pushback from Democratic colleagues who represent states where lenders employ hundreds of constituents.
Jim Manley, a spokesman for Senate Majority Leader Harry Reid (D-Nev.), said no final decision has been made.
"We’re still looking at the options," Manley said.
Several of the Democrats who are expected to oppose the student loan legislation are centrists who could reconsider their support for healthcare reform if the two issues are joined.
President Barack Obama has made reforming student loan programs a high priority of his first term, and the savings created by lending directly to students could save the government $67 billion over 10 years.
But the student loan industry estimates that nearly 35,000 jobs would be lost if the federal government lent directly to students and only let private companies service the loans.
Sallie Mae, one of the largest private lenders, would cut an estimated 2,500 workers in Pennsylvania, Indiana, Delaware, Virginia, New York and Ohio.
Nelnet, a student lending company based in Nebraska, has already laid off employees in Indiana and Florida and could cut additional workers in Colorado.
The employment impact complicates the political calculus in the Senate.
An analysis from Height Analytics, an investment research firm, projected that seven Senate Democrats would vote against the student lending bill.
“We consider Democrats with the most [Sallie Mae/Nelnet Inc.] jobs in their states to be the strongest ‘no’ votes (7 Dems from PA, IN, FL, NE, VA, DE). The student lending industry is lobbying them hard and we expect to see additional expressions of concern about the [Student Aid and Fiscal Responsibility Act],” the company wrote in a report to investors.
On the one hand, Democratic opposition to adopting legislation similar to the student lending reform bill that passed the House last year would make it difficult to muster 60 votes in the Senate to overcome a Republican filibuster.
Republicans say they would staunchly oppose any plan for the federal government to replace private banks as direct student lenders.
“Let’s assume the Senate bill does mirror the House bill in eliminating all private lending — that’s a nonstarter for a lot of Republicans,” said Craig Orfield, Republican spokesman on the Senate Health, Education, Labor and Pensions (HELP) Committee.
Sen. Tom Harkin (D-Iowa), chairman of the HELP panel, has yet to unveil his bill.
In addition, Democrats can only move one reconciliation package through the Senate until the Congress passes a new budget resolution. That means if they do not twin student lending with healthcare reform, lawmakers will have to wait until later this year.
This makes it tempting to stick the Senate’s student lending bill along with a healthcare reform measure in a budget reconciliation package expected to hit the floor later this month. Using reconciliation means, Democrats could pass the student lending overhaul with only 50 votes — assuming Vice President Joe Biden is on hand to break a 50-50 tie.
But using budget reconciliation to pass healthcare reform legislation is controversial enough by itself.
The healthcare measure slated for the reconciliation process would make adjustments to a broader healthcare reform bill the Senate passed in January.
As it is, centrist Democrats are not thrilled about some of the changes demanded by House Democrats, such as raising the level of federal insurance subsidies and increasing the overall cost of reform.
Some Democratic strategists wonder if it might become too heavy a lift if it’s paired with a student lending overhaul several Democratic senators oppose due to home-state interests.
Centrist Democrats such as Sen. Ben Nelson (Neb.) have signaled in recent days that they would support passing healthcare adjustments with special budget rules. A spokesman for Nelson declined to say how adding the student lending provision would affect his vote.
Other centrist Democrats who could reconsider support include Sens. Bill Nelson (Fla.), Evan Bayh (Ind.) and Jim Webb (Va.).
Rachel Racusen, a spokeswoman for the House Education and Labor Committee, which passed the bill last year, said the potential job loss has been overstated.
“While this legislation will trim the profits of CEOs and big banks, it will not lead to enormous jobs losses,” said Racusen. “By maintaining a servicing role for both large and smaller lenders, this bill will preserve jobs and, unlike in the [Federal Family Education Loan Program], keep them from being shipped overseas.”
A lobbyist for one student lending institution said it would be backroom politics at its worst if Democrats passed a student lending bill under reconciliation without even marking up the bill in committee.
“We don’t like that this is rampaging through the Senate without the benefit of one hearing,” said an industry lobbyist.
Sallie Mae, a major player in the fight, has called on Democrats to craft a bipartisan bill and has called for improvements to Obama’s proposed reforms.
“Student loan reform represents an opportunity for bipartisan collaboration,” Sallie Mae wrote in a February press release. “We are disappointed there has not been more debate on these important issues. Congress has held one hearing on reform and considered only the government takeover proposal.
Specifically, Sallie Mae would like Congress to retain private-sector competition for loan origination and allow the private sector to own small stakes in the loans.
“We welcome the opportunity to present the benefits of the reform we support,” the company wrote.