Industry Fights Against Student Loan Reform

February 05, 2010 12:00 pm ET — Walid Zafar

Much of the discussion about President Obama's first State of the Union address has centered on his call to repeal the military's "Don't Ask, Don't Tell" policy and his direct challenge to the Supreme Court regarding their recent ruling on political advertising.  Forgotten in the discussion is the president's call at making education more affordable by taking away "the unwarranted taxpayer subsidies that go to banks for student loans." 

Indeed, one of the Obama administration's main education policy initiatives has been to reform the way in which student loans are administered.  Last year the House, led by Rep. George Miller (D-CA), took on the challenge by aiming to take away the billions in unneeded subsidies private lending such Sallie Mae receive.

Republicans cried foul, accusing Democrats of nationalizing yet another industry.  But their complaints fell on deaf ears and the bill went through the House and was sent to the Senate.  However, as Eric Lichtlau from the New York Times reports, a well financed lobbying and Astroturf campaign by the student loan industry has put the initiative at risk of being scrapped altogether. 

[A]n aggressive lobbying campaign by the nation's biggest student lenders has now put one of the White House's signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.


Sallie Mae, a publicly traded company that is the nation's biggest student lender with $22 billion in loans originated last year, led the field in spending $8 million on lobbying in 2009, more than double the year before, and other lenders spent millions of dollars more, according to an analysis prepared for The New York Times by the Center for Responsive Politics.

Fiscal conservatives in Congress, Republicans and Democrats alike, who denounce wasteful spending, are the main defenders of the student loan industry and are fighting against an initiative that the Congressional Budget Office estimates will save more than $80 billion during the next decade.  That money could be used to assist community colleges and expand Pell Grants.  And conservatives are fighting against it.

We can hope that Senate leaders are able to find a way to pass the needed reform.  But if they are unable, and the status quo remains, it will be just another example of the blatant hypocrisy coming out of Washington.  Conservative logic holds that the privates sector works better than the public.  But when an attempt is made to take the public out of the private, they fight for government subsidies.