Students push for aid overhaul; lenders lobby against it

By Nick Anderson
Wednesday, March 24, 2010

College students swarmed Capitol Hill on Tuesday to plead for more financial aid as private lenders made a last push to preserve their endangered role in making federal student loans.

The dueling messages sought to influence potential Senate action this week on a proposal to expand direct government lending by cutting funding for private firms that make federally guaranteed loans. Tens of billions of dollars in projected savings would flow to grants for needy students.

The proposal is attached to a bill approved Sunday by the House -- separate from the comprehensive health legislation President Obama signed into law Tuesday -- that resolves various differences among congressional Democrats over health-care reform. If the Senate approves the bill without amendment, it also would go to Obama for his signature. But opponents of the student lending overhaul are seeking to revise it in the Senate, which would force another vote in the House.

The opponents face a difficult task because overall Democratic support for the bill appears to be solidifying in the Senate, even among senators who have expressed concerns about the lending overhaul, several Democratic aides said.

One potential swing Democrat on student-loan issues is Sen. Bill Nelson (Fla.), who signed a letter recently urging the Senate to consider alternatives that would not cut into industry jobs. But Dan McLaughlin, a Nelson spokesman, wrote in an e-mail: "Sen. Nelson likes the education and student loan reforms. He doesn't like the jobs it could cost in north Florida. But at this point, it looks like it's in the health-care and education legislation to stay."

On Monday, Sen. Blanche Lincoln (D-Ark.) criticized the bill for including "matters unrelated to health care" and said in a statement, "I cannot support this process." Republicans oppose the lending overhaul as an unwarranted government takeover.

The measure would save an estimated $61 billion over 10 years by cutting out subsidies for private lenders, which the Obama administration describes as needless go-betweens, and by expanding direct government lending. It would provide $36 billion in Pell grants for students from low- and moderate-income families, including $13.5 billion to plug a shortfall this year because rising numbers of students are eligible for aid.

The United States Student Association rallied hundreds of members on Capitol Hill for the bill. They waved signs -- "Students NOT Banks!" and "$ Now!" -- and chanted slogans that underscored the fiscal straits universities face as they raise tuition. "They say, 'Cut back!' " students yelled. "We say, 'Fight back!' "

"I'm an independent student," said Sabrina Ford, 19, of Ypsilanti, Mich., a financial aid recipient in her first year at Eastern Michigan University. "If the Pell grants are cut, I have no idea how I would pay for education. Right now, I rely on myself and the government to assist me."

Lenders say that they also favor cutting government subsidies but that an overhaul should preserve a role for their industry in originating loans. SLM Corp., the Reston-based industry leader known as Sallie Mae, says the bill would force it to shed 2,500 jobs.

"The student loan provisions buried in the health-care legislation intentionally eliminate private sector jobs at a time when our country can least afford to lose them," Sallie Mae said in a statement issued through spokeswoman Martha Holler. "We are profoundly disappointed that thousands of student loan originators will soon lose their jobs -- although the Senate has the power to change this."

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