Student Loan Reform: What's It Doing in the Health Care Debate?

Updated at 7 p.m. ET.

The White House and Democratic leaders are considering wrapping a student loan reform bill into the reconciliation "fix it" bill the Senate plans to pass for health care reform. At least nine senators, however, now oppose the plan, complicating Democrats' plans to finish health care reform as quickly as possible.

Why would Democrats wrap student loan reform into the latest health care bill? President Obama's proposed student loan reforms, which would slash subsidies the government gives loan companies like Sallie Mae, would save the government billions of dollars -- a critical point given the health care debate has largely come down to arguments over cost savings.

Additionally, Democrats could score a clear political victory by passing reforms that would help the thousands of students across the country who last week protested rising higher education costs.

Finally, Mr. Obama has made student loan reform a high priority, and it turns out the health care reconciliation bill may be Democrats' best opportunity to pass it this year: "Democrats can only move one reconciliation package through the Senate until the Congress passes a new budget resolution," the Hill reports. "That means if they do not twin student lending with healthcare reform, lawmakers will have to wait until later this year."

Those reasons are not good enough for a few senators, however. Six Democratic senators sent a letter to Senate Majority Leader Harry Reid this week stating support for student loan reform but saying, "we must proceed toward this objective in a thoughtful manner that considers potential alternative legislative proposals."

A few other senators have also expressed reservations about the plan, bringing the total to nine. Democrats would need at least 50 Senate votes (plus the vote of Vice President Joe Biden) to pass a reconciliation measure, meaning only only nine Democrats could defect. At least 50 senators have said they would agree to pass a health care reconciliation bill, and it seems unlikely Democrats would let student loan reform trip that up.

But Democratic leaders are not abandoning the student loan issue just yet. White House Chief of Staff Rahm Emanuel discussed the matter in a meeting with Senate Democrats yesterday, CBS News Chief Political Consultant Marc Ambinder reports.

The House already last September passed the Student Aid and Fiscal Responsibility Act, which would, among other things, end the subsidized loan program that assists private lenders that give students government-backed loans. Putting the government in charge of all federal loans, rather than subsidizing private lenders to distribute them, would save taxpayers an estimated $67 billion, according to the Congressional Budget Office.

Yet a number of Democratic senators oppose the legislation because private lenders say it would result in as many as 35,000 lost jobs. Sallie Mae would cut an estimated 2,500 workers in Pennsylvania, Indiana, Delaware, Virginia, New York and Ohio, the Hill reports. The company has aggressively lobbied politicians on the issue, according to the Associated Press, and has held town hall meetings and petition drives in Pennsylvania, Florida, Delaware, New York and Indiana.

Democrats in favor of the bill say the industry is largely overstating any predicted job losses -- the bill would maintain a role for private lenders servicing jobs, they say.

"Lenders' claims about job losses have already been debunked as another scare tactic to save their sweetheart deal," Rachel Racusen, Democratic communications director for the House Education and Labor Committee told Hotsheet. "While this legislation will trim the profits of banks, it will not lead to enormous jobs losses."

Republicans oppose the president's student loan plan on the premise that the government should not have so much control over lending. With fewer than 60 senators supporting the measure, reconciliation appears to be the only way to get the reforms through the Senate.

The student loan issue has gained traction with progressive activists. The Web site FireDogLake this week launched a campaign to generate support for passing the student loan reforms via the health care reconciliation bill.

"Colleges across the country can't wait another year for relief," wrote FireDogLake's Jane Hamsher.

Colleges will have to wait, however, if Democratic leaders don't convince enough senators to accept the student loan language in the reconciliation bill.

"We're going to pass a bill," House Speaker Nancy Pelosi said Tuesday night with respect to health care. "We are way far down the road." The next step in health care reform, Pelosi said, is getting cost estimates from the CBO and deciding what stays in the reconciliation measure.

This story was corrected to note that the CBO's latest estimate for the 10-year savings that could be achieved from President Obama's student loan proposal stands at $67 billion. The CBO initially estimated $87 billion in savings but last week revised that figure.

[ConcernedParent725]

It's simply amazing that congress is considering these Student Loan Reform components within the same bill. While I can agree that reducing the overhead (middleman) costs could save taxpayers billions of dollars, I have not seen any facts on what this does to the program this year, and the next 7 years. It's my understanding that the current house bill will end these loans this June, but that new loans will not be available for the next 7 years, students will be directed to PELL grants, and the new loan program will leave a gap in student loan availability. I don't think that our congressional representatives and their staffs have thought this one through, which is typical when you add last minute provisions and language to large controversial bills.

I for one have had it with congress, they seem to have forgotten that they are to represent the people that voted them into office. The proposed changes to Student Loans will hit Middleclass, like everything else - only this time, it will also hit our children and their ability to continue their education after high school.

[albertlords_greenskeeper]

First off - mistake in the story, they claim revision on savings was a week ago, it was much longer ago and is not an issue.

The student loan industry is ripe with corruption and scandal. From financial aid officers fired for taking kickbacks from lenders to DOE officials (who were formerly with the Student Lender Sallie Mae), fired and or resigning in disgrace in 2007 after it was revealed one was taking cash from lenders and the other simply not doing her job of oversight of her former employer.

The head of the NASFAA, the professional organization of financial aid officers, resigned in disgrace last summer after being indicted on eight felonies related to his previous position. The FFELP lenders, among other lobbying efforts, launched a bogus grass roots effort called "protect student choice" led by Washington powerhouse Qorvis. Only problem, they put as one of their three leaders the head of the New Hampshire non-profit NHHEAF - his lack of educational integrity was cited by CBS News themselves in this 2004 report (Rene Drouin is one of the principals of Protect Student Choice and CEO of NHHEAF):

http://www.cbsnews.com/stories/2004/05/10/eveningnews/main616664.shtml

Guaranteed student loans are a federal program. The FFELP lenders are mere middlemen. Those decrying a difference in service between the Direct Program and the FFELP lenders simply have no student loans, no experience with the system, and therefore no intelligence on the matter. Rather, they have financial self interest or some misguided political ideology. This is already a government program!! This is not a takeover, it's elimination of a bunch of leeches!

[hockeymom441]

I like Obama - but what the heck!?! This is a crappy way to push through a health care bill. If Repubs did this, we'd be freaking out!

[Tomj28]

jimbom121 - The CBO said the savings is 67 billion and there will be a new 77 billion in spending, so spin it how you like, there is no saving for the tax payer.
Student loans companies use their own money for federal loans (most actually go to the market and borrow the money they loan out), they use their own money to originate, service, maintain and educate borrowers, the gov only guarantee the student loan company will get paid. Now the gov is paying other companies (mostly sallie mae) huge amounts of money to do it all, and people are still going to default and the Gov(tax payer) is going to be on the hook for it.

[jimbom121]

While I think this is nice cost savings for us, it should be handled outside of the HC debate.

[rferneyhblog]

Whether pro or con SAFRA or FFELP, consider the mechanics of SAFRA:

First ? taxpayer perspective:

1. Since the "savings" has already been tagged for Pell grants and numerous other education initiatives, there really is no "savings" to the taxpayer at all.
2. Dept of Ed (ED) will borrow from treasury to make these loans - Treasury from ... China. More debt ? tens of billions per year.
3. ED will contract with FFELP lenders to service these loans - already signed contracts with 4 of the largest lenders. Call it subsidy, special allowance or service fees - its the same thing. ED will still be paying private lenders.

So, SAFRA will actually cost the taxpayers billions and billions for many years to come.

Second ? borrower perspective:

1. Congress and ED make the rules and set interest rates on student loans - not FFELP.
2. FFELP lenders will be servicing the loans - not ED.
3. FFELP lenders offer incentives to lower interest rates on FFELP loans - ED does not

So, the borrower experience will not change ? and they will get no incentives.


I dont understand why anyone supports this bill - it fixes nothing and will cost billions every year!


Additional points:

* Elimination of about 30,000 middle class, private sector jobs - loan processors, accountants, IT, customer service, ? . And the associated tax revenue.
* ED will actually profit (interest and fees) from these loans ? government profiting from taxpayers while plunging them into debt at the same time. I?m willing to bet this ?profit? will just get spent on other ?initiatives? rather than help defray the cost of the program.
* ED will increase their staff to originate all those loans.

Every loan of all types has to be serviced ? consumer, mortgage, student, ? . Student loans are by far the most complex and, therefore, the most expensive, to service of all. Many, many regulations that no other loan has to comply with - all kinds of deferments, forbearances, letters, calls, ? . ED couldn?t handle this if they wanted to. That?s why SAFRA specifies they must contract with existing lenders for servicing. Nothing comes for free.

[jimbom121]

Your facts are slightly off:

1. The savings has not officially been pegged to Pell or other grants, although that is what the administration wants, since one of their goals is to make college more affordable.
2. These are already government loans. These are not private loans, they are government loans that are sold through admiistrators. So there is no additional lending. Its the same loans that the government sponsors today.
3. Again., this is being done today, so there is no change from today.

The bottom line from the taxpayers perspective is that the gov't is getting rid of the middleman, which the CBO estimates at $80/y

Fromn the borrowers perspective:
-Really no change. On Government loans, the government sets the rates today. But if they use the money for more grants, more people will be able to get aid.
2. Government loans average 3% lower than private (approx 6% v 9% for private)

Job losses may happen, although many of these companies are in other businesses.

Bottom line is that these only affect Government Originated loans, so there is no additional borrowing and we are saving the money sent to the middleman.

[tsigili]

This kind of maneuvering, is why Congress screws everything up!!!!!

[Tomj28]

magnus4000 - unless everybody can agree that people with pre-existing are going to pay more, there is NO chance of bringing the cost of health for everybody down. Your idea of single payer goes against that idea, it says basically everybody pays the same and we all get the same coverage, by definition that is going to drive costs up for ALL.
If your goal is to cover everybody and don't care how much it costs, this will work, if your goal is to bring down costs so everybody can afford it, this will not work! There is no way our country can support 330 million people when over half of them don't pay taxes. Run the numbers it doesn't make sense that covering 30 million more people isn't going to raise the cost for the rest of the people.

[Tomj28]

In response to my claim of new spending, which wipes out any savings!
After reading this you will see a net loss of 10 billion, which of course since we are 12.5 trillion in debt we will have to borrower this money. So just like the 10 billion they extended in un-employment benefits last week, it will cost us the tax payers 100 billion by the time this debt is paid off. How does this sound like a good idea?

"Secretary of Education Arne Duncan portrays the changes as eliminating subsidies to private companies, but no one should misinterpret these comments to mean that taxpayers will benefit. The plan that passed the House includes $67 billion in ?savings,? according to a Friday estimate from the Congressional Budget Office. But the bill also has more than $77 billion in new spending."

[iirishamerican]

There going to take 10$ out of one of your pockets and slip 6$ in your other pocket and pretend like nobody will notice. What a deal!