Kennedy Targets Sallie Mae's Role

Incoming Committee Chairman Sees Savings in Direct Loans

Sen. Edward M. Kennedy (D-Mass.) has argued that it would be cheaper for the government to make student loans. (By Charles Krupa -- Associated Press)

The incoming chairman of the Senate's education committee said yesterday that making student loans more affordable will be one of his top priorities, and he targeted the profits of lenders such as Reston-based Sallie Mae.

"The student loan program works brilliantly for the banks, but not for the students," Sen. Edward M. Kennedy (D-Mass.) said in a speech on the Senate floor.

"We ought to take the money-changers out of the temple in terms of student loans," Kennedy added in a news briefing.

Noting that Sallie Mae's stock price has climbed steeply over the past decade, he said, "This is basically coming out of middle-income families' hide. I think that's unconscionable."

Kennedy's statements were one of the more vivid illustrations yet of what Congress's shift from Republican to Democratic control could mean for businesses and consumers. But investors took the statements in stride -- perhaps because they reflected long-standing positions, or perhaps because they have a long way to go before becoming law.

Sallie Mae's stock price rose 44 cents a share yesterday, to $47.80.

Under Republican control, the government has been generally supportive of private lenders.

But Kennedy and other Democrats have argued that the government can save both students and the U.S. Treasury money by making education loans directly and reducing the role of private middlemen. President Bush's budget for fiscal 2007 included a similar assumption: It estimated that a form of government-backed private loan costs the Treasury 7.59 cents per dollar loaned, while direct loans cost the government 1.70 cents per dollar loaned.

The executive director of America's Student Loan Providers said that such computations are flawed and that the predicted saving is a mirage. "You shouldn't make major changes in a major financial aid program on the basis of faulty scorekeeping," said Kevin Bruns, of the lender coalition.

Sallie Mae spokesman Tom Joyce said in a written statement that the company "strongly supports increasing the overall federal investment in higher education" and looks forward "to working with both Democrats and Republicans to ensure those with the greatest needs . . . gain access to higher education."

As private industries go, the student loan business is particularly indebted to the federal government. Lenders receive interest rate subsidies and federal loan guarantees that can nearly eliminate their losses if borrowers default.

Kennedy will seek to give colleges and universities an incentive to participate in the direct loan program by giving them back some of the savings for need-based financial aid, a Kennedy aide said.