Call it the “March on Washington to Subsidize Student Lenders.” In an effort to prevent the Senate from passing a reform bill that would make college affordable for all, the student loan industry has mounted a massive lobbying campaign to keep its vast government subsidies. Loan giant Sallie Mae alone currently has more than 20 lobbyists blanketing the Hill, trying to sink an effort to reduce college costs and take the middle man out of student lending.
The Family Federal Educational Loan, which has been subsidizing private lenders for years, is at the center of the debate. Under the program, taxpayers cover the cost of a loan if a student can’t pay it back, and so banks are essentially guaranteed a hefty return on their investment. The House passed a reform bill last year with support from President Obama that would revamp the current system and make loans more directly to students. The change would not alter services, and according to the Congressional Budget Office, the proposal would save $87 billion over the next 10 years, which would be reinvested into grants for low- and middle-income students and other critical aid for education.
The Senate has begun working on a similar bill, but the student loan companies have tried to torpedo the entire initiative by arguing that it would wreak economic havoc, and that it would cost tens of thousands of jobs. But the industry plays loose and fast with the facts of loan reform—and the negative economic effects are significantly less than they claim.
For instance, the lenders have argued in lobbying documents that as many as 35,000 jobs would be cut under the proposal, even though their own research shows that the program employs only about 30,000 people. The banks also provided Congress with state-by-state employment counts that appear to overstate the program’s economic reach by including jobs such as technology providers that also support other lending programs. One lobbying document lists two people working with the program in Kansas. However, a communications representative from USA Funds—which is the only loan guarantor in the state—said that the firm had only one employee. “I’d like to know who the other person is,” he told me.
To be sure, student loan reform will lead to some lost jobs—and for those limited number of families, the change in employment status will cause deep and significant turmoil. But ending the program doesn’t mean that all these employees will become jobless. Far from it. Loan companies offer a number of different products, including consulting services and private loans, and Darren Hurlburt, CEO of Maine Education Services, told me that his organization stopped participating in the program in March 2009 and has yet to lay off any staff. “So far all those people were absorbed,” he said.
But what’s more important—and often lost in the debate over the effect on jobs—is that the proposal goes a long way in making college affordable for all students. And that’s key to economic growth. More than $40 billion of the proposal’s projected savings would be reinvested into the federal Pell grant program, which helps low- and middle-income students pay for higher education. Pell grants covered as much as half of tuition and fees 30 years ago. But because college costs have exploded, Pell grants now cover only about one-third of charges. The bill aims to change that so that students would soon receive nearly $7,000 per year to help pay for their degree.
Congress should ignore the weak rhetoric of the loan companies and end the massive government subsidizes paid to student lenders. The bill will cut waste and improve educational opportunities for low- and middle-income families without costing taxpayers an additional penny. Indeed, for policymakers, it’s a simple choice: Deepen the pockets of the student lending industry—or help American students, their families, and the long-term health of the nation’s economy.