Obama’s Student Loan Overhaul Endangered

With Democratic Congressional leaders and the White House struggling on Wednesday to finalize the details of major health care legislation, House Democrats were desperately trying to prevent another of President Obama’s top legislative priorities — an ambitious overhaul of student loan programs — from becoming a casualty of the health care battle.

But Democrats in the Senate, where the private student lending industry has strong allies, predicted on Wednesday night that the education bill would not be part of an expedited budget measure containing the final revisions to the health care legislation. Some Democrats said that such a move would stall the student loan changes at a minimum for several months, and perhaps kill the overhaul altogether.

Mr. Obama’s plan would end a program in which the government pays private, for-profit student lending companies to make risk-free loans using taxpayer money. Instead, the proposed overhaul would broaden the government’s existing direct-lending program, saving billions of dollars that the president had proposed using to expand Pell grant scholarships for low-income students.

But the education bill is strongly opposed by some Senate Democrats, particularly those in states where for-profit student lenders are major employers. In a letter to the majority leader, Senator Harry Reid of Nevada, six Democrats said they disliked the president’s proposal.

"We write to make you aware of our concern with provisions of contemplated student lending reform that could put jobs at risk," the senators wrote. "Increase our nation’s commitment to higher education funding is a priority, but we must proceed toward this objective in a thoughtful manner that considers potential alternative legislative proposals, while still delivering an equivalent amount of savings over the next ten years.

The letter was signed by Senators Thomas R. Carper of Delaware, Blanche Lincoln of Arkansas, Ben Nelson of Nebraska, Bill Nelson of Florida, Mark Warner of Virginia and Jim Webb of Virginia.

The private student lenders insist that the government can save money while allowing them to continue earning some profit on government loans. Supporters of the legislation have repeatedly refuted those arguments, noting that workers would still be needed to originate and service loans made directly by the government. Some private lenders already do that work for the government. The only difference, supporters of the legislation say, is that private lenders would not profit, as they do now, by lending out government money and then selling the loans back to the government.

Provisions in a budget reconciliation bill must meet budget targets for reducing the federal deficit. Mr. Conrad said the education bill could no longer meet that requirement because the projected savings from ending the payments to private student lenders had decreased, according to a recent cost analysis by the Congressional Budget Office, while the cost of expanding Pell grants had grown. As a result, he said the bill as currently written would no longer reduce the deficit.

The House bill was projected to save $87 billion over 10 years and would have spent $87 billion on Pell grants and other education initatives. Mr. Reid’s office said a more recent estimate showed the bill would increase future deficits by about $36 billion.

The bill would save less money because many schools are already switching to the direct lending program, and would cost more because amid the economic downturn more people are going back to school and seeking Pell grants and other assistance.

House Democrats say the bill was never intended to spend more money than it saved, and that the legislation could easily be adjusted to meet the reconciliation requirements.

"Obviously, Sallie Mae and other banks, with their fistfulls of cash, are starting to have their way in the United States Senate," one Democratic Congressional aide said.

In a meeting on Tuesday, Mr. Miller and other House Democrats pressed Mr. Conrad to rely on an earlier cost analysis of the House bill that had been prepared by the budget office.

In a meeting on Tuesday Mr. Miller and other House Democrats pressed Mr. Conrad to rely on an earlier cost analysis of the House bill that had been prepared by the budget office. Mr. Conrad refused, arguing that even if he could legally rely on the prior analysis, it was outdated.

In an interview, Mr. Conrad suggested that the best course of action would be for the education changes to be adopted through a reconciliation bill in next year’s budget process. Congress could approve a new budget resolution later this spring, and Mr. Conrad said the education bill could be adopted soon after that. But given the uncertainties of a mid-term election year, some supporters of the education bill predicted that it would simply die.

"I am strongly supportive of the education package," Mr. Conrad said in an interview. "But I am also insisting that it be paid for."

Private, for-profit student lenders, including Sallie Mae, have lobbied fiercely against the president’s plan. But they were unable to stop House Democrats from approving a bill. Critics of the industry say it reaps large, and unjustified profits, by originating loans made with taxpayer money. The industry insists that it provides valuable services to borrowers and competition for the direct government lending program.

THE NEW YORK TIMES