Yesterday, the House of Representatives passed — by a vote of 253 to 171 — a bill reforming the Federal Family Education Loans (FFEL) program, to cut out the senseless subsidies that the federal government has been giving private loan companies to originate loans. Instead of continuing to use the banks as middle-men, which drives up the cost of the loan program, the federal government would directly lend to students, saving $87 billion.
The bill was passed over the opposition of all but six Republicans, with the GOP claiming that eliminating the subsidies was proposed so that the government could “take over a successful portion of the private sector.” Of course, it’s hard to see how the government can be taking over a program that already has federal in its title, and as the New York Times pointed out, “the loans would be handled through colleges but serviced and collected by private companies and nonprofits that stand to make a tidy profit.”
With the bill out of the House, the focus for the private lenders lobbying against the change now moves to the Senate, where “their chances look distinctly better,” because “several Republican senators have already come out against the proposals, and not all Democrats can be counted on to back it.” The private lenders reportedly have their eyes on a handful of Senate Democrats, and are banking on a few more who have already expressed doubts about the bill. The financial analysis firm Height Analytics is advising student lenders to focus on these sets of senators:
|Already Opposed||On The Fence|
|Sen. Ben Nelson (NE)||Sen. Robert Casey (PA)|
|Sen. Blanche Lincoln (AR)||Sen. Arlen Specter (PA)|
|Sen. Mark Begich (AK)||Sen. Ted Kaufman (DE)|
|Sen. Jeff Bingaman (NM)||Sen. Thomas Carper (DE)|
|Sen. Tom Udall (NM)||Sen. Evan Bayh (IN)|
|Sen. Kent Conrad (ND)|
|Sen. Byron Dorgan (ND)|
|Sen. Bill Nelson (FL)|
Not surprisingly, the states represented above are the epicenters of the private student lending industry. Ben Nelson, in particular, is staunchly opposed to the bill due to Nebraska being the home of the loan company Nelnet (which as the New Nebraska Network pointed out, is “infamous for manipulating the federal government’s student loan subsidies to swindle American taxpayers out of $278 million”). Nelson has flatly stated that he’s willing to continue the $87 billion subsidy boondoggle because eliminating it may result in the loss of 1,000 Nelnet jobs.
Fortunately, once a bill does emerge in the Senate, it can be passed via reconciliation (which removes the threat of a filibuster). However, it will still need the support of some of the industry’s targets if it is to ultimately become law.