Duncan pushes back against private lenders

Duncan said he has "a lot of confidence in the Senate leadership to step up" and pass the direct lending bill.
Duncan said he has "a lot of confidence in the Senate leadership to step up" and pass the direct lending bill.

Responding to private lenders’ lobbying efforts against White House plans for direct federal loans, Education Secretary Arne Duncan said Feb. 17 that he trusts the U.S. Senate will pass the Student Aid and Fiscal Responsibility Act (SAFRA) and “end this boondoggle for banks.”

Five months after the U.S. House of Representatives passed SAFRA, senators have not voted on the bill, while private lending companies have organized town-hall style meetings and aired television ads opposing the bill in several states.

In an afternoon conference call with reporters on Feb. 17, Duncan emphasized that there isn’t a “drop dead date” for passage of the direct-lending legislation, and he promised that education officials are “in this for the long haul.”

“The banking industry has had a free ride for too long,” Duncan said. “Now, the banks are lobbying Congress to protect their scheme.”

He continued: “To me, it’s a simple choice: Subsidize banks or invest in children.”

Duncan has led the charge in the Obama administration’s proposal to have student loans come directly from the federal government, saving taxpayers a reported $87 billion over 10 years by doing away with subsidies given to private lenders, who then loan students money with interest tacked on.

Advocates for direct federal loans contend that the policy shift would insulate student aid from dramatic market swings that can increase interest rates and decrease the availability of loans. The economic downturn has seen more than 30 private lending companies stop offering student loans.

Duncan refuted the lending industry charge that a direct federal loan program would cost tens of thousands of jobs in a slumping economy. He said lenders who would work with the government to distribute loans would hire Americans, because SAFRA would require lending companies to be based in the U.S.

Duncan said during the conference call that private lenders have begun airing TV commercials opposing direct lending in four states.

And with the direct-lending legislation stalled in the Senate, private lenders have bolstered their lobbying efforts. Sallie Mae, the country’s largest provider of student loans, spent about $3.5 million in lobbying efforts last year, an increase from $3.2 million in 2008, according to the Center for Responsive Politics, a national research group that tracks trends in lobbying.

Education lobbying totals dipped overall in 2009, to $98.6 million, down from $105.5 million in 2008, according to the center.

Duncan sent a letter to 3,500 colleges and universities last October urging them to “ensure uninterrupted access to federal student loans by ensuring your institution is direct loan-ready for the 2010-2011 academic year.” Since then, more college leaders have moved to a direct-lending model.

The letter drew fire from some colleges and members of Congress, however. Sen. Mike Johanns, a Nebraska Republican, said in a letter to Duncan that he had unfairly pressured colleges into switching to direct lending before the Senate had taken a close look at the proposed law.

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