Bank lobby fighting to maintain federally subsidized student loans

Move over, tobacco lawyers. Lobbyists representing banks and other providers of federally subsidized student loans may now have the toughest job in town.

Their task is to convince members of Congress and the Bush administration to preserve existing subsidies for federal loan programs. Both Democrats and Republicans want to find a way to pay for programs designed to help make college more affordable for students and their families — and those very subsidies may be cut to produce savings for other programs, such as Pell Grants.

“We’ve found it very challenging to find support in the House and Senate,” acknowledged Fritz Elmendorf of the Consumer Bankers of America (CBA). Asked how receptive members and staff are to the arguments of student-loan providers, Harrison Wadsworth of Washington Partners, which represents CBA, will only say that people are at least willing to talk.

A lobbyist for student-loan programs for many years, Wadsworth believes he’s doing valuable work. But he acknowledges that ideological arguments over whether the private market should be involved in federally subsidized college loans have become charged. That leaves lobbyists for lenders in a difficult position.

“It is an intensely political environment,” agreed Alexa Marrero, vice president of communications and industry for the Education Finance Council. The group represents the non-profit student-loan secondary market groups that take part in the Federal Family Education Loan Program (FFELP).

Marrero said FFELP is caught up in a confluence of factors that threaten its existence, but she insisted it is not the time to throw in the towel, and that there is a case for preserving the program.

The main problem, sources say, is that most politicians want to show that they are doing something to help college students and their families with the skyrocketing cost of college. But cutting subsidies to student loans won’t keep tuition, books and room-and-board costs from increasing.

The problem is “the principal, not the interest,” Wadsworth said.

Companies such as Nelnet, one of a handful of companies that dominate the federally subsidized student-loan business, appear to have stepped up their lobbying efforts in the wake of the difficult environment.

Last December, after Congress trimmed $20 billion from existing federal subsidies for student loans as part of the Deficit Reduction Act, Nelnet hired the bipartisan firm Quinn Gillespie & Associates. Senate records show that the lobbyists registered by Quinn Gillespie who work for Nelnet include Alison Giles, a former chief of staff on the Ways and Means Committee for then-Chairman Bill Thomas (R-Calif.), and Kevin Kayes, a former chief counsel to Senate Majority Leader Harry Reid (D-Nev.).

Asked about the efforts, Nelnet spokesman Eric Solomon said this is “an especially important time for companies like Nelnet to speak to both sides of the aisle and voice our opinions” on the benefits of FFELP.

Under that program, lenders provide federally guaranteed loans to students in partnership with school financial-aid offices. According to Nelnet’s website, lenders taking part in the program in fiscal year 2004 provided $39 billion in loans to 5.4 million students, which the company said represented 74 percent of all student loans.

The program has come under attack from the House, which passed legislation Jan. 17 halving interest rates on subsidized student loans. That bill, H.R. 5, paid for the cuts through a variety of provisions, including increases in various fees and lower lender insurance rates.

In its proposal for the fiscal year 2008 budget, the Bush administration proposed a further $17.3 billion cut in subsidies for FFELP, primarily though reducing the interest rates that private lenders are guaranteed to receive.
“The industry is not a bottomless well that can fund all these benefits for students,” one lender source said of the proposed cuts, which came as a surprise to some in the industry after last year’s cuts. If companies start moving out of the FFEL program, he added, the Department of Education might not be able to make up the difference through its direct-lending program. That plan offers loans on the same rates and terms as FFELP, but through funds that come directly from the U.S. treasury.

For their part, Democrats like House Education and Labor Committee Chairman George Miller (D-Calif.) and Rep. Tom Petri (R-Wis.) see the direct-loan program as more effective than FFELP and think there is room for additional cuts.

“Our subsidies to private lenders are so excessive that we can save the taxpayers a lot of money while providing a better deal for students simply by encouraging the use of the more efficient student-loan program,” Petri said in a statement last month.

But FFELP backers argue the competition in the private market leads participating lenders to offer better rates, making it a good alternative to the direct-loan program. They also argue that FFELP lenders offer a range of services for dealing with the maze of loan programs for students.