TOPICS > Education

College Loan Overhaul Looms in Health Reform Package

March 19, 2010 at 12:00 AM EDT
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A new measure allowing college students to bypass banks and receive college aid directly from the government could pass alongside the health reform bill. Jeffrey Brown talks to Jason DeLisle of the New America Foundation and Renee Mang of Sallie Mae.

JEFFREY BROWN: And finally tonight: another major piece of legislation attached to the health care bill that may also be voted on Sunday. This one would make the federal government the main player for getting student loans.

For decades, private lenders have provided most of the nation’s student loans, with a guarantee by the federal government, which bore the risk of default. President Obama has argued that these banks and other financial institutions have become expensive middlemen, draining valuable funds away from education programs.

He made the case for change in his State of the Union address.

U.S. PRESIDENT BARACK OBAMA: To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans. Instead, let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants.

JEFFREY BROWN: In the bill’s latest form, the government would make loans directly to students. Private institutions could service, but no longer originate, those loans.

The Congressional Budget Office estimates savings of $61 billion over the next decade. Thirty-six billion of that would go to the popular Pell Grant program, and Pell Grants to individuals would be raised by $425, to $5,975, by the year 2017.

More than $4 billion in savings would go to community colleges and to historically black colleges and other institutions that serve minorities. The rest, close to $20 billion, would be used for non-education purposes, offsetting health care reform expenses and reducing the federal deficit. The measure’s fortunes are now linked to those of the health care bill this weekend.

And we get two views of this now from Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, and, from, Tampa, Renee Mang, senior vice president for Sallie Mae, the country’s leading private student lender. She oversees the company’s loan origination and servicing operations.

Jason Delisle, starting with you, who — who would benefit from this, and how?

JASON DELISLE, federal education budget project director, New America Foundation: Well, I think the main beneficiaries of the change are students from low-income families who are going to receive larger Pell Grants under this piece of pending legislation.

The — as was mentioned at the beginning of the segment, the increase will be fairly significant. It is — it is an expensive program. But the Pell Grant would approach $6,000 in several years. And there would also be an immediate infusion of cash into the program to shore up the more immediate grants that are coming in the next year or two.

JEFFREY BROWN: Renee Mang, what — what — what — well, how do you this, see making this switch? What would be wrong with cutting out the middleman and making the loan directly from the government right to the students?

RENEE MANG, senior vice president, Sallie Mae: Well, there’s a number of things that’s really wrong with that. And thank you for allowing me the opportunity to come on your show.

First of all, I wanted to be clear that Sallie Mae has supported student loan reform now for quite some time. However, we believe that it can be achieved without significant job loss, which is the current path that we are heading down.

I’m here today to represent the 700 employees in Panama City specifically who will — whose jobs are at risk, because the jobs that we do in Panama City are the exact jobs that the federal government plans to take over in direct lending.

In addition to that, on behalf of all the Sallie Mae employees, which are 8,500 employees at Sallie Mae, and employees across the entire country, there will be a significant impact if this legislation passes.

JEFFREY BROWN: Well, let’s start with the jobs issue. You are talking about the employees that would be hit by direct lending. But part of this would keep you in the process, right, because you would be involved with processing loans?

RENEE MANG: We wouldn’t be doing the loan originations. We would be — we are one of four Department of Education servicers. So, we would certainly service the loans post-disbursement, after direct lending.

But, frankly, again, we are one of four. And so there’s just not significant enough volume there to prevent job losses at Sallie Mae, or, for that matter, other companies across the country.

JEFFREY BROWN: Jason Delisle, you want to jump in? What about the job loss potential here?

JASON DELISLE: Well, I always say on this — on this particular point that the student loan program has one singular purpose, and that is to make sure students get favorable loans at low-interest rates, with flexible repayment terms, to attend colleges all across the country. That’s the only goal.

And I think taxpayers want Congress to run the program at the lowest cost possible, which means with as few employees as possible. So, I think that the jobs argument is sort of a secondary issue here.

JEFFREY BROWN: Jason, one of the criticisms I have heard that’s certainly out there is, government shouldn’t be taking this on at all. It’s — government is not very good at this. It’s a program that, with all its flaws, has gotten loans to millions of people in the past.

JASON DELISLE: Yes, and I have heard that argument a lot. And I think it’s — it’s very misleading.

You have to remember that there’s — the loan terms issued to the borrower are identical under both loan programs, all right? So, you have — on the one hand, you have Sallie Mae making loans to students. But the terms are set by the government.

On the other hand, you have the direct loan program making loans to students at the exact same terms. So, you have one federal program. And I think claiming that the federal government is taking over its own program doesn’t make sense. Sallie Mae runs the federal program.

RENEE MANG: Yes, and…

JEFFREY BROWN: Go ahead. Go ahead, Ms. Mang.

RENEE MANG: Yes, and if you would allow me to jump in here, the direct loan program is not a new program. It started in 1993. And, frankly, students and schools and parents have voted for the last 17 years, and they have chosen the private sector 75 percent of the time.

I have been in this business for 32 years. And I have talked to thousands, probably hundreds of thousands, of parents and students over the years. And I certainly talk to schools every single day. And they want choice. And they want to choose who they want to do business with.

I mean, literally, we have thousands of students who have applied for loans at Sallie Mae that are being denied the right today to take those loans because the schools are being forced to go to the direct lending program.

JEFFREY BROWN: But isn’t it…

RENEE MANG: So, if it is not a government takeover — if it is not a government takeover, why would we need legislation to change it?

JEFFREY BROWN: All right, go ahead, Jason Delisle.

JASON DELISLE: Well, it’s an important point.

She mentioned that, you know, students are choosing private lenders to disburse their loans, but she also mentioned that schools are choosing. Under current law, under the current program, no student has a choice of which loan program they want to use. The school chooses which loan program they will use, whether they be direct loans or guaranteed loans disbursed by Sallie Mae.

So, students are stuck with whichever program their school has chosen for them. So, it’s not the case of consumers voting with their feet and choosing one program over the other. This is an administrative decision that’s being made at the financial aid office on which program they prefer. So, it’s not an issue of consumer choice.

RENEE MANG: Well, I disagree — I disagree — yes, I disagree with that, because we have many schools, of course…


JASON DELISLE: Do you know of any student…

RENEE MANG: … that have preferred-lender lists, but there are many students who want to do business with Sallie Mae and, frankly, other lenders that are being denied that right today.

JEFFREY BROWN: Let me touch on one other issue here, which is what to do with the savings. A lot of it, as I said, in that introduction would go to Pell Grants. But some of it goes to non-education needs.

Jason Delisle, starting with you, is that — is that a good way to use the savings? A lot of it is going to health care and to deficit reduction.

JASON DELISLE: Yes. I have looked at the — the CBO, the Congressional Budget, cost estimate, and, to me, it looks like the education portion of the bill saves money, on net, every single year, except one.

So, it looks to me, in my interpretation of that analysis, that the health care bill is actually subsidizing a small piece of the education bill, and not the other way around.

JEFFREY BROWN: What do you see, Ms. Mang, in terms of the — in terms of the savings?

RENEE MANG: Yes, I guess I — I see it very differently.

I mean, what I saw in the law today, or the current legislation, was $9 billion would go toward health care. And, as you probably are well aware, Sallie Mae and other institutions have put forward a community proposal that has similar savings and delivers on what President Obama is asking for, but still provides choice for schools, for students, for parents, and preserves the jobs of the great people who do this work today.

JEFFREY BROWN: And maintains the…

RENEE MANG: And these folks who do this work…


RENEE MANG: Go ahead.

JEFFREY BROWN: No, no, I said, and would — but it would maintain the direct lending from private institutions, as opposed to the government?

RENEE MANG: I’m sorry?

JEFFREY BROWN: Your proposal that — the way you would prefer to do it would maintain the system as is in terms of the direct loans coming from financial institutions, and not the government?

RENEE MANG: That’s exactly right. Mm-hmm.

JEFFREY BROWN: Do you think, Jason Delisle, because this has been put forward several times in the past, what are the prospects now?

JASON DELISLE: I think they’re good.

I think Congress is in a tough spot. We have back-to-back trillion-dollar budget deficits, two years in a row. But there’s a lot of need for a strong Pell Grant program to at least maintain the grant level currently and for future increases.

The best way to get that funding is to reduce subsidies or eliminate them altogether to lenders. The key point here, though, is that we’re cutting spending in the student loan program, but every single student who is going to receive a loan last year will receive one next year.

That’s the key point. That’s the key point in this argument, is that these two loan programs disburse the exact same loan to students. So, students aren’t being harmed in any way, shape or form here. And we’re freeing up excess subsidies that’s going to go to Pell Grants.

JEFFREY BROWN: All right. We will have to leave it there and see what happens this…


JEFFREY BROWN: We have to leave it there — I’m sorry — and see what happens this weekend.

Jason Delisle, Renee Mang, thank you both very much.


RENEE MANG: Thank you for…