Let the Politics Begin

Via the Student Lending Analytics blog, the Hill reported yesterday on the debate between lawmakers over President Obama's proposal to eliminate subsidies to private student loan companies and shift all student loans to the federal government's Direct Loan Program. According to the article, the proposal is facing "stiff bipartisan resistance" from lawmakers, many of whom have received generous campaign donations from private loan companies.

This isn't surprising - the President's proposal threatens to put student loan companies out of business, or at least take away the vast majority of their business, leaving them to make private student loans (which are hard to finance these days) and to service federal loans distributed through the Direct Loan Program. Student loan companies are not likely to go down without a long, hard fight, and have a strong lobbying force for the battle, honed by many years of fighting subsidy cuts and promoting increased loan volume. And they have contributed an impressive amount in campaign donations, which I'm sure opens the ears of some lawmakers to their arguments. From the article:

Nelnet and Sallie Mae, the country’s largest student lender, have traditionally been big campaign donors. Sallie Mae gave out more than $583,000 to lawmakers and political action committees in 2008, dividing the funds nearly equally between the parties. That’s the highest total of any company in the finance/credit sector, which includes credit card companies American Express, Visa and MasterCard, according to the Center for Responsive Politics. NelNet gave out $142,000 in political donations.

But if there was a time to take on the student loan lobby, now is it. With the tight credit markets, student loan companies have had to turn to the government for money to make new loans, strengthening the argument that companies like Sallie Mae and NelNet are just expensive middlemen in the student loan system.

But the question still remains as to whether the Direct Loan Program could smoothly process loans for an additional 6 million students. And it is a high stakes question - the federal loan program touches the lives of many families in the U.S., across the income spectrum, and any hiccup in loan availability will be felt throughout the country. The President, Senators and Congressmen will all hear from their constituents if there is trouble getting loan money for college.

As the article notes, Obama is proposing a lot of change, and very quickly. While lawmakers argue about the idea and student loan companies lobby for their survival, I hope someone at the Direct Loan Program is planning for some big changes to come.