Duncan Slams Lenders Blocking Loan Reform: ‘Working Americans Pay While Bankers Get Rich’

AP081216030221Earlier this week, the New York Times detailed how student loan companies are “using sit-downs with lawmakers, town-hall-style meetings and petition drives” as part of a multi-million lobbying campaign aimed at torpedoing the Student Aid and Fiscal Responsibility Act (SAFRA), which would cut the companies’ federal subsidies. SAFRA, which is an Obama administration priority, has bogged down in the Senate due to the loan companies’ efforts, particularly that of Sallie Mae, which last year spent $8 million lobbying.

So yesterday, Education Secretary Arne Duncan fired back:

Working Americans pay while bankers get rich,” Duncan said in a prepared statement. “Sallie Mae executives have paid themselves hundreds of millions of dollars in the last decade while teachers, nurses, and scientists — the backbone of the new economy — face crushing debt because of runaway college tuition costs.”

I think banks have had a sweet deal. They’re a powerful lobbying force, and working-class families don’t have lobbyists working for them,” said Duncan in an interview with the Huffington Post. “And so you have strong, entrenched interests that have lobbied and continue to lobby to this day, and they’re running ads in states. And you have, on the flip side, millions of working-class families trying to do the right thing and go to school.”

It’s nice to see Duncan inject some fire into the student loan reform debate, because adopting SAFRA makes complete sense in an era of rising tuition, record student debt, and long-term national deficits. The measure would save more than $80 billion over ten years, which the administration plans to redirect toward Pell Grants and other education initiatives.

SAFRA opponents are making two arguments against reform. The first is that the measure constitutes a “government takeover” of student lending, which is pretty silly considering that federal subsidies already keep the lenders afloat and the government guarantees them against losses.

The second argument is that the move will cause student loan companies to slash jobs, putting people out of work with the labor market still incredibly weak. But as the Scranton (PA) Times-Tribune noted, this doesn’t hold water:

Sallie Mae and three other lenders already have signed contracts with the government to service loans under the direct loan reform. In order to get that contract, Sallie Mae eliminated 2,000 overseas jobs and returned them to the United States. They are servicing jobs. Under the reforms, the servicing part of the industry will grow.

So as the Washington Monthly’s Daniel Luzer put it, “at least in Sallie Mae’s case, it looks like direct lending might actually bring more jobs to America.”

Rep. George Miller (D-CA) has said “it’s inconceivable to me that the Congress would continue unwarranted subsidies to these lenders,” but many senators are still hesitant to back the effort. Given the lengths that the student loan companies are putting into retaining the status quo, the administration needs to continue lending weight to the cause.