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Leading student lender Sallie Mae reported profits of $324 million last year on the strength of its student loan business, which is heavily subsidized through the Federal Family Education Loan program (FFEL). Sallie Mae originated $21 billion worth of loans backed by the program in 2009; other major lenders profiting from the program include Citigroup, Nelnet, JP Morgan, and Wells Fargo.
Meanwhile, by ending the program with the Student Aid and Fiscal Responsibility Act (SAFRA), the Congressional Budget Office estimates that the federal government would save $68 billion—money that would otherwise subsidize these banks' profits. The CBO score also estimates that students would pay significantly lower interest rates on their loans.
With billions in profits on the line, banks have waged an intensive, multimillion-dollar political and lobbying campaign to maintain the status quo: subsidies for the banks, at students' expense.
Their expensive campaign has won them some support. On March 9, six Democratic senators—Blanche Lincoln, D-Ark.; Mark Warner, D-Va.; Tom Carper, D-Del.; Ben Nelson, D-Neb.; Bill Nelson, D-Fla., and Jim Webb, D-Va.—sent a letter to Senate Majority Leader Harry Reid to make him "aware of our concern" about reform efforts and urging consideration of "potential alternative legislative proposals."
What would prompt six senators to oppose efforts aimed at reducing lending costs by cutting out superfluous money-changers? The answer, of course, is the power of money, as deployed through a combination of campaign contributions and strategic lobbyist hires.
This report documents the extensive ties between the six senators and major players in the student loan industry. Among the findings:
The report documents a host of additional ties between the six senatorial defenders of the status quo and the main organs of the student loan industry.
Given that deeply indebted students and young adults have little discretionary income to devote to catered dinners for senators and campaign coffers, we can only hope that transparency and accountability will balance the scales.