sallie mae

This week I again referenced the hope that the DCCC has to ensure young voters vote for democratic candidates this November. It seems members of Congress want to get reelected, want young voters to vote for them, but members of the US Senate evidently have little interest in casting votes that help young people.

The White House's plan would help students who too often face high interest rates, miserable expectations to repay, and in the end students can end up paying for school three times over. But according to the New York Times bankers say a giant government takeover is afoot

"that could put thousands of people out of work at private lending centers around the country at a time when unemployment is hovering around 10 percent."

So the banks are throwing down. The Times reports that Sallie Mae, the giant student loan lender, has spent $8 million in lobbying the US Senate to prevent the White House's call to overhaul the student loan industry. This is more than double what they spent last year.

"House and Senate aides say that the administration’s plan faces a far tougher fight than it did last fall, when the House passed its version. The fierce attacks from the lending industry, the Massachusetts election that cost the Democrats their filibuster-proof majority in the Senate and the fight over a health care bill have all damaged the chances for the student loan measure . . .

...Political action committees for the lenders and company employees made $2.1 million in political contributions last year, with the money split evenly among Democrat and Republican candidates, the data showed. Sallie Mae’s PAC alone made $194,000 in donations.

Some 10 million students got loans last year to help pay for their educations, and there is disagreement about whether having the federal government take over virtually the entire lending program would help or hurt them. Private lenders warn that students may default on their loans more often because they will get less counseling; the Obama administration says students will benefit from more grants and expanded educational programs. . . "

Less counseling? Seriously? This is their concern? The banking industry just worries about young people, and really wants to make sure they're being taken care of. Yeah, right...

"I would think that the White House would prefer not to make senators vote for something that is going to be very unpopular in their states — and for good reason,” said Jamie Gorelick, a former Clinton administration official who is now lobbying for the lending industry."

Somehow, I think having Senators going back to their districts and explaining to their constituents that they chose their state's young people and their future over the multi-billion dollar student loan industry is more of a win for them. But it wouldn't surprise me if this were to pass Sallie Mae then turned around to spend millions on ads saying they voted against the banker's jobs. Gotta love the Washington BS game.

Email your Senators today and demand they vote in the interest of our nation's youth and not the bankers.

Interestingly enough this story appears the same day The Hill posts a piece reporting that funding for higher education is really good for job creation.

It says, among other things that community colleges specifically can help train youth in some of the most sought after fields such as health care and credentials in engineering which can yield good starting salaries and great futures.

A new report, "Graduated Success: Sustainable Economic Opportunity Through One- and Two-Year Credentials" says

"forty-three percent of those who hold a certificate as their highest degree earn a median annual salary that is higher than that earned by someone holding an associates degree. And twenty-seven percent of those holding a community college certificate as their highest degree earn a median annual salary that is higher than someone holding a bachelors degree. Nearly a third (31 percent) of associates degree holders earn more than someone holding a bachelors degree. . .

. . .The salaries earned by those with community college certificates in engineering and health care ($47,000 and $46,000 respectively), are close to what bachelors degree holders in the social or natural sciences earn, and are actually more than what someone holding a bachelors degree in education earns."

So while the banking industry would have voters believe supporting youth is a crushing blow to the job industry, in reality we're helping more students than NOT helping them.

According to today's New York Times, private lenders are gearing up to fight Obama's proposal to end the Family Federal Education Loan (FFEL) program, which subsidizes corporate lenders at the highest possible interests rates, in favor of the more efficient (and cheap) Direct Loan program run by the government:

The private student lending industry and its allies in Congress are maneuvering to thwart a plan by President Obama to end a subsidized loan program and redirect billions of dollars in bank profits to scholarships for needy students.

The plan is the main money-saving component of Mr. Obama’s education agenda, which includes a sweeping overhaul of financial aid programs. The Congressional Budget Office says replacing subsidized loans made by private banks with direct government lending would save $94 billion over the next decade, money that Mr. Obama would use to expand Pell grants for the poorest students.

But the proposal has ignited one of the most fractious policy fights this year.

One one side are the corporations, who don't want to lose out on their government dole (even as they openly admit that private capital and a true free market won't provide adequate student aid via lending), Republicans who see this as an unnecessary expansion of government (even though the government is already massively subsidizing the private sector in this area), and Democrats who receive large donations from private lenders or whose states house the actual lending companies.

The companies themselves have already taken out some big guns, hiring lobbyists with deep professional (and familial) ties to the administration:

Because it would make spending on Pell grants mandatory, limiting Congressional control, powerful appropriators are balking at it. Republicans say the plan is proof that Mr. Obama is trying to vastly expand government. Democrats are divided, with lawmakers from districts where lenders are big employers already drawing battle lines.

At the same time, the private loan industry, which would have collapsed without a government rescue last year, has begun lobbying aggressively to save a program that has generated giant profits with very little risk.

“The administration has decided that it wants to capture the profits of federal student loans,” said Kevin Bruns, executive director of America’s Student Loan Providers, a trade group that is fighting Mr. Obama’s plan.

To press its case, the nation’s largest student lender, Sallie Mae, has hired two prominent lobbyists, Tony Podesta, whose brother, John, led the Obama transition, and Jamie S. Gorelick, a former deputy attorney general in the Clinton administration.

Here's what you need to know on this issue: The President's plan will save billions over the next decade by cutting out a middle man that isn't willing or able to lend money without massive government support in the first place. Money saved by cutting out those middle men will be funneled back into the Pell Grant program, providing more grant aid to need students without decreasing the availability of loans to other students. Contrary to the assertions of Republicans, the program doesn't kill private student lending, it merely removes the government subsidies those companies have received for decades. Conservatives who support government efficiency and a reduction in wasteful spending should support the President's proposal. Furthermore, those private lending companies will still receive government contracts to pay for back-end services in administering and tracking loans:

At the Wilkes-Barre event, Mr. Lord of Sallie Mae acknowledged his industry’s reliance on the government. “I don’t see private capital financing student loans, certainly any time soon,” he said.

Even as lenders fight the president’s plan, Sallie Mae and others are bidding for work that will remain if it is adopted — contracts for loan servicing and other back office operations.

The president’s plan would use the money from direct lending to help increase Pell grants and make them mandatory, with annual increases tied to inflation, providing a much-needed measure of certainty for students.

Here's a list of the top recipients of campaign donations from the private lending industry. These are the Senators most likely to stand in the way of Obama's reforms on this issue:

The Hill reports that a bipartisan group of senators are grumbling about some of President Obama's proposed reforms to higher education student aid programs. Specifically, they are opposed to Obama's proposal to effectively end the Family Federal Education Loan program and channel all government lending to students through the Direct Loan program.

If you are unfamiliar with the FFEL and Direct Loan programs, the difference is fairly simple. FFEL is basically a government subsidy to the private loan industry, while the Direct Loan programs provide the same service to students at a lower cost to the taxpayers. As an excellent primer from the Center for American Progress explains:

FFEL is a no-lose proposition for private lenders. The government guarantees repayment in the case of default and a predetermined profit margin, paying a subsidy if the student interest rate falls below a set level. Therefore, it is not surprising that the largest private lender in FFEL – Sallie Mae – is also one of the most profitable companies in the country. In fact, Sallie Mae was recently identified as the second most profitable company in the United States with over 36 percent return on revenues – compared to a median return of 4.6 percent for the nation's 500 biggest companies.

Direct Loans are a better deal for the taxpayers. First, they ensure that the interest is returned to the Treasury, rather than subsidizing banks working as middlemen. Second, they provide the necessary capital at a lower cost. When a bank makes a student loan, it borrows money on the open market and then lends it out to the customer. The federal government does the same thing. But the government's cost of borrowing is much lower than a bank's, because the government borrows against U.S. Treasury bills backed by the "full faith and credit" of the United States. Former Bush Council of Economic Advisors Chief Lawrence Lindsey made this point in 1995, stating that "taxpayer cost is less for direct lending largely because the government can obtain capital less expensively through the sale of government securities than the market rates it must pay to support a system of loan guarantees."

The FFEL and Direct Loan systems deliver the same loans at the same interest rates to students, and colleges choose in which program to participate. But every time a school opts for FFEL, the taxpayer loses because the costs to the government far exceed the costs of Direct Loans.

So who are these Senators that oppose Obama's shift from the FFEL to the Direct Loan program? Mostly they are recipients of large campaign contributions from the two largest private student lending corporations: Sallie Mae and Nelnet.

From The Hill:

Rep. Buck McKeon (Calif.), the top Republican on the House Education and Labor Committee, received $20,000 in donations from private lenders Sallie Mae and Nelnet, the most of any lawmaker during the last campaign cycle.

McKeon argues Obama’s proposal is a “government takeover” of the $85 billion student aid industry that would only grow the country’s budget deficit. The Republican has supported private lending firms because they have provided students with more choices and serve as a “critical backstop” for the public lending program, said Alexa Marrero, spokeswoman for Republicans on the House Education and Labor Committee. [...]

While the Obama administration expects that the shift from subsidized private loans to direct federal lending would save taxpayers $4 billion a year, McKeon has derided the plan as a “government takeover” that would add to the federal deficit and limit students’ choices.

You have to love conservatives. They're all for free and unfettered markets, supposedly because they are more efficient than government programs and because they are opposed to wasteful spending. Unless, of course, it endangers the business model of their supporters.

Let's be clear as to what's happening here. The Obama administration isn't trying to shut down or "take over" private lending, and they're not proposing some wildly inefficient, Rube Goldbergesque government program take the place of private lenders. What they're proposing is that the government stop paying an unnecessary and needlessly expensive subsidy to the private lending industry, and direct those savings towards the more efficient Direct Loan Program. And let's be clear, the Direct Loan Program is a far more efficient use of resources. From the CAP report:

Based on data provided in a 1999 U.S. Department of Education report on the administrative costs of each student loan program and the "subsidy" costs associated with each loan program contained in the Administration's budget for fiscal year 2005, we can estimate that direct loans cost the government approximately 69 cents per every $100 loaned or less than one penny per dollar loaned. In contrast, FFEL loans cost the government $10.51 for every $100 borrowed or a little more than 10 cents on the dollar. So the savings affiliated with opting for a Direct Loan rather than a FFEL loan are approximately $9.82 ($10.51 - $0.69) per $100 borrowed, or more than 9 cents on the dollar.

So Obama's plan will continue to provide much needed financial aid to students, but at far less cost to the American taxpayer. That's what we're talking about here, and that's what the Senators from Sallie Mae and Nelnet oppose. Fortunately it looks like they don't have too many votes on their side, and a procedural move by Steny Hoyer may make any opposition to the changes futile at best:

Though Hoyer hasn’t weighed in on the proposal, one of his aides told reporters last week that student loan reform could be attached to a budget reconciliation bill, a move that would make it easier to get through the Senate. Reconciliation measures can’t be filibustered and require only a simple majority to pass in the upper chamber. Since Obama announced his budget plan last month, a key centrist Democrat, Sen. Ben Nelson (Neb.), and several senators in the GOP leadership, including Lamar Alexander (Tenn.) and John Cornyn (Texas), have come out against the proposal for more direct government lending.

Let's hope that Hoyer, who is also a large recipient of Sallie Mae contributions, makes the right decision here and comes out in support of the bill. If not, I don't expect that Sallie Mae and Nelnet are going to take this lying down. If it gets to that, we might actually have a fight on our hands.

Update: Add Florida to the list, as the University of Miami caves to Sallie Mae:

According to excellent reporting in the St. Petersburg Times, many University of Miami incoming freshmen were surprised this summer when they received pre-filled out master promissory notes from loan giant Sallie Mae even though they never actually applied for a loan. The students were particularly shocked to see that the notes included personal information, such as their Social Security numbers and birthdates, which they had not authorized the university to release.

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Higher Education Watch is reporting a disturbing piece of news. Sallie Mae and other corporate lenders are using state Freedom of Information Laws in a bid to force colleges and universities to hand over private information about students and their financial status. So far these types of requests are known to have been filed in New York, Pennsylvania and Oregon.

According to Higher Ed Watch, Sallie Mae will not challenge any schools that refuse to comply with the request, and insist that their intent in making such requests is to inform students of "all of their financial options." That is a hard pill to swallow. Sallie Mae is a company that profits by pushing more costly private loans on students over loans that come directly from the federal government. As Higher Ed Watch notes, a more likely explanation is that Sallie Mae and other lenders are targeting schools where they have failed to be included on the preferred lender list - a listing of private lending institutions that school financial aid offices provide to students who need to fill in the gaps in their funding after grants and federal lending options are exhausted.

What can be done? Students at schools can engage their financial aid offices to see if Sallie Mae or other lenders have issues such requests, and activists can work towards strengthening the Family Federal Education Rights and Privacy Act. FOI laws were created to increase transparency in government, not to allow corporations to exploit young people trying to pay for an education.

I've heaped praise on MTV over the past month for their innovation in reaching out to younger voters online, so it was disappointing to me to read this article in Ad Age announcing announcing MTV's Tr3s, a bilingual channel for Latinos.

NEW YORK MTV Tr3s, the bilingual channel for young Latinos, featured a first-ever platform Saturday for its viewers to voice their opinions on the immigration debate, an issue that is a personal one for many Hispanic youths who are undocumented or who have family members who are not legal U.S. residents.

For the fledgling channel, the move is part of a wider effort through other issue-themed programming on television and online to enhance the political clout of Latinos heading into the 2008 election. The immigration debate is expected to emerge as a key voter issue among Hispanics.

It isn't the channel or the project that I object to. 18% of Millennials are Hispanic, they are one of the fastest growing portions of the electorate, and young Latinos deserve a forum in broadcast media. With ethnic media becoming a force, it makes business sense for MTV as well. As Ad Age reports, advertising in the Latino youth market was a $2.9 billion industry last year.

My objection is with MTV's partner and sponsor: Salie Mae and the U.S. Army, respectively. MTV is selling this programming as a form of community service to young Latinos:

"MTV has a mantra of doing a lot of community outreach with the MTV Think campaign, and we're always promoting civic engagement and activism," Ballas-Traynor said. "For us [at MTV Tr3s], the perspective was, 'This is done a lot by Univision, Telemundo and others, but ours is a different audience with a different perspective.'"

Using the Think campaign Web site, MTV Tr3s will promote its issued-themed programming, giving viewers a chance to continue the dialogue on immigration and other issues such as education.

But, to paraphrase Kanye, Sallie Mae does not care about young people. They are a company that is involved in some of the student loan scandals that have graced the pages of our media in the last 6 months. They are a for profit company that exploits young people and the government, and worked hard to keep our student lending system highly inefficient and dysfunctional (though to be sure, more profitable for them).

If MTV had looked, they could easily have found a partner more suited to serving the interests of young Latinos. The Center for Community Change or the Ella Baker Center immediately jumps to mind. Working with MTV would be a huge profile boost for those organizations, both of which have roots in the communities MTV would be trying to reach. Instead, MTV is providing cover for an company whose interests are fundamentally at odds with those of the constituency they are purporting to help.

MTV's major advertiser, The U.S. Army, has a similar credibility problem. As has been reported in numerous places, the U.S. Army frequently uses Hip Hop culture to recruit African American teenagers, presenting a glorified image of life in the Army, and even a leg up on life. Yet few soldiers ever receive all the benefits they are promised by recruiters. I find it difficult to believe that the Army's intentions and tactics would be any less objectionable among Latinos.

It seems like MTV is doing the right thing in launching its bilingual channel, but if it is really concerned about giving Latinos a voice in the public debate and an equal place at the table in our society, it might want to look into brokering partnerships with organizations that actually have the best interests of latinos at heart. I don't expect MTV to be altruistic; they are a for profit company. But surely there are potential partners available that could better suit the interests of latino youth without hurting MTV's bottom line.

Cross posted at MyDD and Daily Kos.

Another update on Nelson-Burr (aka the corporate lender welfare amendment). Word is that the vote is going to be around noon today and it is going to be tight. Yesterday, Rick Enzi, ranking Republican on the Senate Education committee declared that he would vote against the amendment, potentially bringing a number of Republicans over with him. A number of Senators s are on the fence - particularly Tester on the Democratic side and Smith on the Republican side - but many of the Senators listed below don't really know anything about the amendment or how it would impact students.

Give them a call before noon today. Tell them why they should vote yes on the bill and no on the Nelson-Burr amendment. The Capitol Switchboard can be reached at (202) 224-3121.

Update:
Here's the list of swing votes who might side with Nelson and the corporate lenders over debt-ridden students:

Alexander (R - TN)
Bayh (D - IN)
Carper (D - DE)
Coleman (R - MN)
Collins (R - ME)
Hatch (R - UT)
Landrieu (D - LA)
McCaskill (D - MO)
Murkowski (R - AK)
Nelson, Ben (D - NE)
Nelson, Bill (D - FL)
Roberts (R - KS)
Tester (D - MT)
Webb (D - VA)

Call their offices and urge them to vote YES on S. 1762, and NO on the Nelson-Burr Amendment. The Capitol Switchboard can be reached at (202) 224-3121.
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Cross posted at Daily Kos and MyDD. Please recommend.

Last week, most student organizations rejoiced as the Democrats shepherded the Cost of College Reduction Act through the House of Representatives. The Bill represented the largest increase in student aid since the G.I. Bill. It accomplished this in part by cutting excess government subsidies to corporate lenders, who were fattening their wallets on the backs of debt-ridden students. Republicans tried unsuccessfully to kill the bill in the House. The Gavel had an excellent post about that fight and the bill’s passage.

The Senate version of the bill – The Higher Education Access Act of 2007 - is set to provide $17 billion in student aid to college students and recent graduates, among other provisions to further protect students. But Ben Nelson (D-NE), whose home state is also home to Nelnet, one of the biggest corporate lenders, is trying to weaken the Senate version of the bill and return $3 billion of that to the lending industry so they can continue to line their pockets on with corporate welfare.

What I’m hearing is that the cloture votes on Iraq and the DOD reauthorization are going to fail, and the Higher Education Access Act of 2007 will be brought to the floor instead, with voting to be scheduled for today or tomorrow. Right now, Republicans supposedly have 3-6 Democrats willing to side with lenders on the Amendment, so they are likely to see it pass.

Here’s what you can do:

• Call your Senator and urge them to vote YES on S. 1762, and NO on the Nelson-Burr Amendment. The Capitol Switchboard can be reached at (202) 224-3121, and the operators can tell you both who your Senators are and connect you.
• Also ask which way your Senator plans on voting. If we can find out who those 3-6 Democrats are that are supporting lender subsidies over students we can ratchet up the pressure on them.

If you find out which Democrats (besides Nelson) are in favor of the Nelson-Burr Amendment, contact me and I'll keep an updated list and post around the blogosphere.

The lenders (and Nelson’s) argument is that cuts in subsidies need to be scaled back so that lenders can offer students benefits, and that subsidy cuts will cause the loan market to consolidate and there will be less choice for students. This is bunk. The loan market is already consolidated, and less than 10% of students ever see a dime of those supposed “benefits.” Meanwhile, groups like NelNet and Sallie Mae have used those government subsidies to give outrageous benefits packages to CEOs, reap hundreds of millions in additional profits, and improperly wine and dine university officials who should be protecting the interests of students.

$3 billion could fund 588,000 Pell Grants at the maximum level of $5100. As millions of students are getting priced out of college, or saddled with unmanageable levels of debt, our government should be voting to protect and aid students, not funnel more money to corporations already reaping hundreds of millions in government subsidies and profits.