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Bayh, Lobbyists Fight To Preserve Government Subsidies

February 18, 2010 - by Eric Naing

The White House is again trying to end government subsides to the student loan industry but a multi-million dollar lobbying effort is pushing back.

As we have discussed before, the government currently doles out billions in subsidies to private student loan companies. The Student Aid and Fiscal Responsibility Act (H.R.3221) would essentially cut those companies out of the equation and allow the government to lend directly to students saving an estimated $87 billion over a decade.

Democrats pushed the bill through the House last year but it faces stiff opposition from several powerful senators – particularly those from states that house student loan companies.

One such senator is the retiring Evan Bayh [D, IN]. Not coincidentally, his state of Indiana is home to a major servicing center for Sallie Mae – the nation’s largest student loan company.

In a letter sent yesterday to Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin [D, IA] and Sen. Mike Enzi [R, WY], Bayh questioned the bill saying he had “concerns about the short-term impact reform efforts could have on employment in Indiana.” Sallie Mae employs around 2,300 people in Indiana. The company also spent $3.48 million on federal lobbying last year.

Also on Wednesday, Education Secretary Arne Duncan repeated the administration’s desire to end what it calls the student loan industry’s “free ride from taxpayers.” Duncan’s words, however, may be buried by the millions of lobbying dollars the industry is spending to kill the legislation.

The student loan industry has put forth its own proposal that it says accomplishes the same goal as the president’s plan. The New America Foundation explains:

The proposal, dubbed the Student Loan Community Proposal, would eliminate the Federal Family Education Loan (FFEL) program and move all new student loans into the Direct Loan program, just like the president’s proposal.

But there is an important difference:

The Student Loan Community Proposal would allow lenders to continue originating federal student loans at individual schools and collect two new subsidies for doing so. The Congressional Budget Office estimates that these payments would cost taxpayers $13 billion over ten years, reducing the $87 billion in savings from eliminating the FFEL program by the same amount.

Like many things these days, the White House’s student loan plan will have a tough time overcoming opposition from Senate Republicans and a handful of conservative Democrats.

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