Mountains of Student Debt, and the Political Will for Solutions Are at Hand
by Faiz Shakir, Amanda Terkel, Matt Corley, Benjamin Armbruster, Zaid Jilani, and Alex Seitz-Wald
One of the great hardships facing American college students today is student debt.
According to a recent report from The Project on Student Debt, the average student in the class of 2008 graduated with $23,000 of debt, "a figure 25 percent higher than what their older brothers and sisters owed when they graduated from college in 2004"; two out of every three college students now graduate with debt, and the Great Recession is requiring students to take out more loans than ever before. In the 2008-09 academic year, federal student loan borrowing "grew about 25% over the previous year, to $75.1 billion." A major reason for the ever-growing debt load America's students are taking on is the broken student lending system, a big part of which involves the government paying student loan companies to originate and service loans. The companies are the inefficient middle men that drive up costs for students without adding any value. To rectify this problem, progressives in Congress introduced the Student Aid and Fiscal Responsibility Act (SAFRA), which expands and improves successful student aid programs like the Pell Grant and the Perkins Loan program, and eliminates billions of dollars in subsidies to wasteful private lenders. Last September, by a 253-171 vote, the House of Representatives passed this landmark student lending legislation. Now, SAFRA is a Senate vote away from the President's desk, and a group of Republicans and conservative Democrats, buoyed by "an aggressive lobbying campaign by the nation's biggest student lenders," is all that stands in the way of creating a more just and cost-efficient federal student lending system. Additionally, there are reports circulating that Senate Democrats may pair their "overhaul of federal student lending with healthcare reform" in one reconciliation package, which would allow SAFRA to pass with a simple majority vote in the Senate and avoid a filibuster by lender-friendly conservatives.
WHY STUDENT AID REFORM MATTERS: Since 1965, the federal government has assisted students in paying for college through the Federal Family Education Loan (FFEL) program. While FFEL has helped many students afford college, it also extremely inefficient because the loans it provides are not made directly to students but rather through profit-seeking private student lenders. The presence of these lenders provides "a guaranteed rate of return for banks and other middlemen who provide capital for student loans," with taxpayers being "required by law to reimburse the banks for 97 percent of the losses" when students are unable to repay their debts -- essentially acting as a "lucrative form of corporate welfare." By 2006, loans made to students directly by the government were earning taxpayers two cents on every dollar, whereas the FFEL program was netting fifteen cents for every dollar for private lenders. Thanks to the $413 billion in outstanding FFEL loans, student lender Sallie Mae was the second-most-profitable company in the world in 2005. SAFRA would eliminate FFEL, cutting out the wasteful bank middlemen, and use the $67 billion in savings over 10 years to "raise Pell grants, improve access and completion rates," and simplify the college aid process. "The Obama administration has stepped in, in a very bold way, to fix aid programs and make them more effective," said Christine Lindstrom, director of higher-education programs for the U.S. Public Interest Research Group. "[SAFRA] is game-changing." As President Obama has said, the question when it comes to SAFRA is "whether we want to give tens of billions of dollars of tax dollars to special interests or whether we want to make college more affordable for 8.5 million more students."
LENDERS AND CONSERVATIVES VERSUS STUDENTS: The private student lending industry, desperate to maintain its government-sponsored largess, has mounted "an aggressive lobbying campaign" aimed at killing SAFRA. Sallie Mae, which offered $22 billion in loans in 2009, spent $3.48 million on federal lobbying in the same year. The lenders' lobbying campaign failed to stop the bill in the House, but it may have swung some votes. The Center for Responsive Politics found that House members who voted against SAFRA received an average of $2,986 more in contributions from Sallie Mae than those who supported it; meanwhile, four House Democrats who voted against the legislation received an average of $32,721 more from the mega lender than those who voted for. Having lost the fight in the House, lenders are now turning their sights to conservative senators. As a 2006 strategy memo revealed, Sallie Mae's lobbying has been focused on growing the "pro-FFEL coalition within the Democratic Party" by "[directing] congressional PAC giving" to key conservatives. Indeed, Senate conservatives have lined up against students and for the lending industry, doing everything they can to stop SAFRA from proceeding. Staunch SAFRA opponent Sen. Ben Nelson (D-NE) has flatly stated that he is opposed to lending reform because he is worried it may eliminate 1,000 jobs at Nebraska-based Nelnet, a major student lender that is "infamous for manipulating the federal government's student loan subsidies to swindle American taxpayers out of $278 million." Meanwhile, the private lending industry is particularly focused on lobbying a handful of senators from states where the majority of lenders are based, framing their opposition to SAFRA as a way to save jobs. "We consider Democrats with the most [Sallie Mae/Nelnet Inc.] jobs in their states to be the strongest 'no' votes (7 Democrats from PA, IN, FL, NE, VA, DE)," the research firm Height Analytics wrote in a report to lending company investors. Yet the fact is that only 30,000 people at most are employed in the student lending industry -- many argue that the number is actually far smaller and that only a small portion of these employees work in direct loans -- and because the companies would still be in charge of servicing all the government issued loans, servicing jobs could actually increase. For example, "Nelnet (Ben Nelson's biggest donor) saw their servicing revenues [increase] 13% in 2009 as a result of a contract they won to service student loans for the Department of Education." Last week, Sen. Lamar Alexander (R-TN) wrote a scaremongering objection to SAFRA, claiming that it would amount to a "Washington takeover" of the student loan system, turning the student lending process into a process "as enjoyable as going to the Department of Motor Vehicles" -- which is bizarre, because the government already makes millions of loans every year. All SAFRA does is remove the banking industry middlemen, making the process less bureaucratic and getting money more directly to students.
THE PATH OF RECONCILIATION: Due to stalwart opposition from Republican senators and wavering support from lender-friendly Democrats, SAFRA may be unable to overcome a filibuster in the Senate. Thankfully, once the Senate's version of the bill is done, it can be passed via reconciliation (which removes the threat of a filibuster)." The Hill reports that "a Democratic official familiar with negotiations" over the student lending bill have already decided to "pair [the] overhaul of student lending with healthcare reform," although Senate Majority Leader Harry Reid's office (D-NV) says "no final decision has been made." While the right has already started to scaremonger about "tying two government takeovers so closely together" in one reconciliation bill, the truth is that there is a precedent for using the budget reconciliation process for major education reform legislation. In 2007, the Senate passed the College Cost Reduction Act of 2007 through the reconciliation process by an overwhelmingly bipartisan vote of 79-12. Although passing the bill through reconciliation would be legal and proper, it would have to be altered in one area. "Because of budget rules tied to the reconciliation process, it's unlikely that Pell Grants...will become a full government entitlement program" in the same year, though Congress is free to separately expand and improve the popular program.