Private lenders are focusing on jobs in their effort to sway centrist Senate Democrats from supporting an overhaul of student loans.
Sallie Mae, the largest lender with 8,500 employees and 26 locations, argues the Student Aid and Fiscal Responsibility Act (SAFRA) approved by the House would cost the economy 35,000 jobs. Such an argument could resonate as lawmakers grow increasingly focused on jobs and worried about the nation’s unemployment rate, which is now greater than 10 percent.
Time also may be working in favor of the private lenders, particularly with healthcare reform delaying the Senate. Universities and colleges are set to send their financial aid packages for the new school year to prospective students in February and March, leaving little time to install a new system.
A key moment could take place this week when financial aid officers attend a Federal Student Aid conference in Nashville. Education Secretary Arne Duncan is set to give the keynote address.
Private lenders such as Sallie Mae and Nelnet would no longer be able to originate federally backed loans under legislation approved by the House and supported by President Barack Obama, though the companies could still service federal loans. Obama argues the legislation would save the nation $87 billion over 10 years by cutting subsidies to private lenders.
Kevin Bruns, executive director of America’s Student Loan Providers, says if passed, the overhaul will force 4,000 schools to change to direct lending in June 2010, hardly in time for the 2010 academic year. “We oppose the bill and we stand for an alternative program that would achieve what the president wants to achieve without the downsides,” said Bruns.
Ads purchased by the student lender show the faces of employees at Sallie Mae, along with their responsibilities at the company. “Congress, my job is worth saving,” is the message spelled out by the ads.
Sallie Mae has organized petition drives in five states to raise support for rival legislation. It also has met with several key centrist Democrats, including Sen. Evan Bayh (Ind.), who was presented with a petition signed by 186,092 people. That petition said the House bill would reduce jobs and called for private companies to be able to continue to originate loans. About 80,000 of those who signed the petition are from Indiana.
If the House legislation is approved, Sallie Mae would cut its payroll of 8,500 employees by 30 percent or 2,300, according to Martha Holler, a company spokeswoman.
“We continue to support alternative legislation that generates $87 billion of taxpayer saving that can be delivered tomorrow with no transition risk and with job growth, not the significant job losses inherent in the administration’s proposal,” Albert L. Lord, vice chairman and CEO of Sallie Mae, said in a recent statement.
Sen. Ben Nelson (D) of Nebraska, which is also Nelnet’s home state, has joined Sen. Mike Enzi (R-Wyo.), ranking member of the Health, Education, Labor and Pensions (HELP) Committee, and other Senate Republicans in sponsoring legislation to extend the present system for another year. Nelson is the only Democratic co-sponsor of the legislation.
The Senate HELP Committee hopes to draft a version of the House bill by Christmas, and it’s possible that bill could receive a floor vote early next year.
A research note published in November by FBR Capital Markets analyst Matt Snowling and first reported by Dow Jones said the Obama-backed legislation would be several votes short of passage in the Senate.
Snowling’s research note predicted that the overhaul would have to be put off by a year because of healthcare reform. He suggested this could give Sallie Mae and Nelnet more time to sell Congress on their alternative proposal.
Sen. Tom Harkin (D-Iowa), the chairman of the HELP panel, has said he’ll use special budget reconciliation rules so that only 51 Senate votes would be needed to win procedural motions on the bill.
But that could cost him support from some of the centrists he’s trying to win over. Democrats such as Sen. Kent Conrad (N.D.), the Budget Committee chairman, have said reconciliation should only be used for lowering the deficit, and not for enacting policy changes.
Groups representing students say the change would help graduates leave college with less debt, while helping taxpayers by cutting subsidies to private lenders.
“Students are really excited about this legislation [because] they will be able to graduate with less debt,” said Angela Peoples, legislative director of the U.S. Student Association.
But a number of Democratic senators have expressed concerns about the overhaul.
Private lenders are especially focused on Democratic Sens. Bob Casey Jr. (Pa.) and Jeff Bingaman (N.M.), both members of the HELP Committee. Casey has said he is worried about the job losses, and he has held hearings on the legislation in Pennsylvania that he says are intended to increase understanding among students and lenders.
Other possible swing votes include Democratic Sens. Mary Landrieu (La.), Blanche Lincoln (Ark.), Mark Begich (Alaska), Tom Carper (Del.), Tim Johnson (S.D.), Mark Udall (Colo.), Jim Webb (Va.), Tom Udall (N.M.), Arlen Specter (Pa.) and Bill Nelson (Fla.).
Sallie Mae has donated $272,000 to political candidates so far in 2009, while Nelnet has donated $39,500. In the 2008 election cycle, Sallie Mae spent $912,750 on candidates and Nelnet spent $222,000.