Late Effort to Weaken Student-Loan Bill

Thru Jul 19, 2007

Sallie Mae, the nation’s largest lender, has been campaigning against legislation that would overhaul the student loans system in recent weeks. Now it has found a Democratic ally in the House.

Representative Henry Cuellar of Texas is proposing changes that would severely weaken a central provision of the bill testing the idea of making lenders compete in an auction for the right to make student loans. Lenders offering to charge the least would win the auction, an idea supported by Democrats trying to make good on campaign pledges to restrain the escalating costs of higher education.

Mr. Cuellar proposed an amendment, which has not not been adopted but is still circulating, that would appear to transfer the power to decide whether the auctions would be approved for wider use away from the secretary of education, and to some groups that have lobbied heavily against the bill.

The secretary of education would have to find a “consensus” among members of a group including “representatives of investment banks, ratings agencies, lenders, institutions of higher education, and students, as well as individuals or other entities with pertinent technical expertise,” according to the amendment, and then report back to Congress before implementing an auction program more broadly. (pdf)

In an e-mail message obtained by The Times, a Sallie Mae executive urged members of Congress to back the amendment, as did a more detailed letter on the proposal sent to Congressional leaders who would combine the Senate and the House bills for the final legislation. (PDF’s: amendment proposal | letter)

The auctions system “could end the system of subsidies to student loan companies,” Jonathan Glater of The Times wrote. Lenders who make student loans are predicting that the combination of changes, including a $19 billion cut to subsidies, will force some companies out of business, reducing the supply of loans to students and increasing prices. Here’s what the Congressional Research Service concluded, according to The Times:

Small and medium-sized lenders would probably be hardest hit, and would face difficulties competing with industry giants like Sallie Mae. The report said Sallie Mae would likely be able to handle the cuts unscathed.

The Senate started debate on similar legislation today.

UPDATE, 6:17 PM ET The Bush administration has come out against the Senate’s version of the bill “in its current form because

Source:
http://thelede.blogs.nytimes.com/2007/07/18/late-effort-to-weaken-student-loan-bill/