Bill ending banks' role in student loans stalls in Senate

By Nick Anderson
Washington Post Staff Writer
Friday, January 29, 2010

Four months after it sailed through the Democratic-led House, legislation to overhaul federal student lending and channel about $80 billion in savings toward an array of education initiatives has stalled in the Senate.

In his State of the Union address Wednesday, President Obama exhorted the Senate to pass the bill, which he said would revitalize community colleges and make college more affordable. But the bill faces unified opposition from the Republican minority and sharp questions from at least some Democrats, according to congressional aides from both parties, and the Democratic majority has put it on hold during the drawn-out health-care deliberations.

The assumption on Capitol Hill is that Democrats will attempt to move the student loan bill through a special procedure that requires a simple majority rather than the usual 60 votes out of 100 needed to stop a filibuster. That tactic is also under discussion for health-care reform, said the aides, who asked for anonymity to speak candidly. So the two issues have become intertwined.

Timing is significant. because the student loan legislation would require all colleges to use direct government lending as of July 1 for federal loans. Currently, they can choose between direct lending and a federal program that guarantees student loans made by private banks. The bill would not affect nonfederal loans.

By cutting banks out of the equation, the administration expects to reap $80 billion over the next decade for increased student aid, community colleges, early childhood education and other programs. Those funding estimates, however, are being questioned because they are several months old.

Prominent players in the lending industry, including Sallie Mae, oppose the legislation, saying that it will eliminate thousands of jobs and that there are ways to save the government money without shutting out private lenders. Republicans depict themselves as defenders of market competition.

Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, has not introduced his version of the House bill, passed in mid-September on a vote of 253 to 171. He said he plans to move a bill "early this year."

In the meantime, Republicans are on the attack. "Relying on budgetary gimmicks to stage another Washington takeover, this time of 15 million student loans, is not good for college students," said Sen. Lamar Alexander (R-Tenn.), a former education secretary. "The Department of Education in Washington will not be able to serve students as well as 3,000 lending institutions."

Sen. Ben Nelson (D-Neb.) and a few other Democrats also have raised questions about the bill, although it appears that most in the party support it.

Bob Shireman, deputy undersecretary of education, said colleges are preparing to switch to direct lending. "I'm confident that we'll see movement on this bill."

The University of Maryland is preparing to switch to direct lending if needed, said Sarah Bauder, the school's financial aid director, but she added that she prefers the public-private guaranteed lending program. "My concern is that no one's made a decision yet" in Congress, Bauder said. "It's holding the students hostage."

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