Student Loan Giant Lends Support To Democrats For A Change

Early last December, Sallie Mae executives confronted a daunting problem. One of their big investments had gone bad. Not real estate, nor bonds, but the Republican majority in Congress. 

For years, the student loan giant's political action committee contributed most of its money to Republicans -- counting on the champions of free enterprise to protect the company's role in the huge student loan program in the face of Democratic efforts to convert it to a government-run operation. 

Now, its investment had gone sour. The Democrats had won control of Congress. And a company "federal government relations strategy" memo released last month by House Education and Labor Committee Chairman George Miller (D-Calif.) makes it clear that the company was very worried. 

It listed hiring a Democratic lobbyist as one of the "critical things to get done by Christmas." And in March, a high-profile Democratic lobbyist -- former Sen. John Breaux of Louisiana, now with Patton Boggs -- registered as a Sallie Mae lobbyist. 

The company also decided it needed to find a Democratic public relations firm. 

The stakes were huge for Sallie Mae; its brochures boast of a $130 billion portfolio of student loans. 

Many of the questions about the Dec. 5 memo have focused on whether Sallie Mae officials used inside information in making stock sales decisions. But the document also provides a unique glimpse at a company shaken by a political earthquake. 

It explains a proposed government and public relations blitz from Nov. 20 to Jan. 12, including finding a Democratic lobbyist and PR firm.

The company planned to enlist governors to take their message to congressional offices, as well as administrators from historically black colleges and universities. The message was clear: The student loan program "is working for students and should not be targeted by Congress." 

Sallie Mae did not respond to a request for comment on Miller's distribution of the memo or its contents. 

The company's immediate panic could be understood, as the Republicans spent years blasting the direct loan program as another government boondoggle. And they were rewarded for it. 

For instance, in the 2004 election cycle, Sallie Mae's PAC contributed $614,399 to House and Senate candidates, with 59 percent of the money going to Republicans and 41 percent to Democrats, according to an analysis compiled by the Center for Responsive Politics. 

In 2006, when it started to become clear that majority control of Congress might shift, Sallie Mae contributed $572,000, with 52 percent going to Democrats. 

A frequent critic of the student loan program, Barmak Nassirian, said Republicans -- particularly when they controlled the House education committee -- had protected Sallie Mae by making sure it had less risk in the program. 

Sallie Mae's financial performance was fantastic, said Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers. "You would have thought these people would have invented something," he said. "What they had was … a lock on the committee." 

But Steve Forde, spokesman for California Rep. Buck McKeon, the ranking Republican on the House Education and Labor Committee, said its members were simply supporting free enterprise by backing Sallie Mae and the banks in the loan program. 

"It's embracing a free-market philosophy," he said. 

A spokesman for House Minority Leader John A. Boehner (R-Ohio) said the congressman has consistently pushed for reforms in the student loan program, including reducing excess subsidies paid to lenders. 

"As a former small businessman and a strong believer in the private sector, Mr. Boehner has always fundamentally rejected the notion that a federal takeover of the student loa market would result in cheaper loans for students, and has always voted accordingly," said Boehner spokesman Kevin Smith. 

According to the Dec. 5 memo, one of the company's immediate "challenges" was how to handle the new reality that the "harshest critics of private-sector lenders (would be) in key leadership positions." 

The company's strategy included lobbying and making campaign contributions to the moderate Blue Dog Democrats, as well as members of the Congressional Black Caucus and the Congressional Hispanic Caucus. 

And Federal Election Commission records show that Sallie Mae did just that. For instance, since the start of the year, the company has made $5,000 contributions to the PACs representing the Blue Dog and Hispanic caucuses, as well as to key members of the caucuses. 

But in a sign that Democrats still may not love Sallie Mae, the fiscal 2008 budget resolution Congress recently passed included a loan subsidy cut that could jeopardize Sallie Mae's sale to a private equity firm. 

Still, Sallie Mae keeps trying. It hired Edward Grebow, an operating partner of J.C. Flowers & Co., to supervise the sale -- and he has ties to several prominent Democrats.