Plan to Change Student Lending Sets Up a Fight

WASHINGTON — 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.

In some states, student loans are administered by quasi-governmental agencies that benefit the same as private lenders. To appeal to these states, the administration has proposed $500 million a year for financial literacy programs and other services the agencies provide. Political opposition may be harder to overcome.

Representative Howard P. McKeon of California, the senior Republican on the education committee, said Democrats should not cut out private lenders. “A government-run, one-size-fits-all program is not the answer,” he said.

But some lawmakers have no sympathy for an industry now kept afloat by taxpayers.
“If the banks complain that they are getting cut out,” said Representative Barney Frank, Democrat of Massachusetts, “too bad.”

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. That would limit Congressional control over the grants, an idea appropriators are not keen on, but the White House and Congressional leaders say they are open to negotiation.

Anticipating a ferocious legislative battle, Representative George Miller, Democrat of California and chairman of the education committee, is weighing all options.

“Chairman Miller’s priority is to make our federal student loan programs as reliable, sustainable and efficient as possible for students, families and taxpayers,” his spokeswoman, Rachel Racusen, said. (New York Times)

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