Student Loan Industry: We Are NOT Dead Yet

Recently the Secretary of Education, Arne Duncan, advised [1] college financial administrators that with the likely passage of the Student Aid and Fiscal Responsibility Act [2](SAFRA) in the Senate, universities nationwide should prepare to switch over to federal direct lending of student loans. SAFRA already passed by the House, would end the Federal Family Education Loan program (FFEL) that doles out billions in wasteful federal subsidies to private lenders. In response to the Secretary, banks and their allies in the Senate made it known that they are alive and ready to battle to keep their profits, that reform is in no way a done deal.

Some of the biggest private student loan companies have joined together to form a “grassroots” campaign against SAFRA, called Project Student Choice [3]. They even have a Facebook page [4]chock full of misguided information to lure student support. While this past week, Chase [5] and Ed America [6]–among the largest student loan companies –announced that they see no reason to stop providing loans under FFEL. In other words, they are confident that the Senate will not pass reform legislation, so no need for stockholders or colleges to prepare for the move. Ed America also made explicit their support of preserving the status quo with their endorsement of Republican Senator Lamar Alexander's (TN) plan [7] that extends the life of FFEL. The company goes on to claim [6], “We want to put STUDENTS back into student loans.” Or put directly, preserve their profits.

Lenders have friends in the Senate too. Democrat Ben Nelson (NE) recently sent a letter in defense of the student loan industry, chastising Secretary Duncan’s announcement to colleges. The senator complained [8] the Department of Education’s actions “may be seen as clouding the debate” and that this is “spreading alarm in order to promote the government-run Direct Loan program.”

Not surprisingly, Nelson’s top contributor is the troubled student lender Nelnet Inc. Nelnet is the same company I wrote about [9]recently, who is being sued by the federal government, accused of defrauding the government nearly $300 million with their participation in FFEL. This is on top of Nelnet’s previous settlement with the Department of Education worth hundreds of millions for fraud in 2007 [10].

Unfortunately, SAFRA and the historic reforms it provides by ending billion dollar corporate giveaways are on hold in the Senate at the moment. Until health care legislation is passed, the Student Aid bill joins the queue with other important bills awaiting Congress’ attention. With that said, this is no moment for progressives to take a cat nap. This longer than expected window of time only means that big banks and lenders can resurrect from the dead and build support in the Senate to kill reform legislation that jeopardizes their precious profits, at the expense of student and taxpayers.

Visit the Campaign for College Affordability [11]and tell your Senator to put Students over Banks! by supporting the Student Aid and Fiscal Responsibility Act.