Six Democrats Side With Banks, Ask For ‘Alternative’ To Landmark Student Lending Reform

By Zaid Jilani One of the greatest hardships facing America’s college students is student debt; the average student in the class of 2008 graduated with $23,000 of debt, “a figure 25 percent higher than what their older brothers and sisters owed when they graduated from college in 2004.”

To tackle this student debt crisis, last year the House of Representatives passed the Student Aid and Fiscal Responsibility Act (SAFRA), which expands and improves successful student aid programs like the Pell Grant and the Perkins Loan program, and eliminates billions of dollars in subsidies to wasteful private lenders by arranging loans directly with students instead of through bank middlemen.

The Senate is currently deliberating over its own version of the bill, and it is one Senate floor vote away from being signed into law by the President. However, the student lending industry has launched an “aggressive lobbying campaign” of senators representing states where big lenders are based, scaremongering about job losses resulting from passing SAFRA. Now, it appears that their lobbying is paying off, as six Democratic senators have written to Sen. Tom Harkin (D-IA), chairman of the Senate Health, Education, Labor and Pensions Committee, asking him to “consider potential alternative legislative proposals” to SAFRA’s major lending reforms:

Six Democrats signaled deep concerns with their chamber’s student lending reform bill on Tuesday, imploring party leaders to “consider potential alternative legislative proposals” in the coming days.

That could spell trouble for Sen. Tom Harkin (D-Iowa), the chairman of the Senate Health, Education, Labor and Pensions Committee, and other Democratic leaders, who once hoped to advance the Student Aid and Fiscal Responsibility Act to the president’s desk using the chamber’s 50-vote reconciliation process.

In a brief letter dated Tuesday, Democratic Sens. Bill Nelson (Fl.), Tom Carper (Del.), Blanche Lincoln (Ark.), Jim Webb (Va.), Mark Warner (Va.) and Ben Nelson (Neb.) describe reform to the country’s “higher education funding” system as a “priority.” But the group…also express concerns the Senate’s lending bill could ultimately result in local job loss.

While the senators may be claiming that passing SAFRA would result in job losses in their states, the truth is that it would be minimal at worst. The fact is that only 30,000 people at most are employed in the student lending industry. And because the companies would still be in charge of servicing all the government issued loans, servicing jobs could actually increase. For example, “Nelnet (Ben Nelson’s biggest donor) saw their servicing revenues [increase] 13% in 2009 as a result of a contract they won to service student loans for the Department of Education.”

One way to avoid a filibuster by Republicans and lender-friendly Democrats is to pass SAFRA with the health care legislation in one reconciliation bill. The Hill reports that “a Democratic official familiar with negotiations” over the student lending bill has told them that the leadership has already decided to “pair [the] overhaul of student lending with healthcare reform,” although Senate Majority Leader Harry Reid’s (D-NV) office says “no final decision has been made.” Using reconciliation for a major education reform bill would hardly be without precedent. In 2007, the Senate passed the College Cost Reduction Act of 2007 through the reconciliation process by an overwhelmingly bipartisan vote of 79-12.