In September 1991, Bill Clinton unveiled what would become one of the most consistently popular applause lines of his presidential campaign. “Opportunity for all,” he told the Democratic National Committee, “means giving every young American the chance to borrow the money necessary to go to college and pay it back…” Before he could get to the next part, the audience interrupted him with applause. “Pay it back as a percentage of income over several years, or with years of national service here at home—a domestic GI Bill.” Again Clinton was interrupted by the Democratic activists. “A domestic GI Bill that would ask young Americans to go to the streets of our cities and be teachers, to be policemen where we need community policemen, to be nurses where there’s a nursing shortage, to be family service workers where families are breaking down and children are abused and neglected, to rebuild America from the people point of view. We can do that with a national service.”

Just two years later, Clinton signed the law that created AmeriCorps, which will in its first year put more young people into service than the Peace Corps had at its peak. But what of the other part of that stump-speech line, the cryptic mention of college loans that could be paid back “as a percentage of income over time”? This, too, became law—and may end up being one of Clinton’s most important social policy legacies. While national service will touch tens of thousands of people, student loan reform will touch millions.

Yet the Washington press corps paid almost no attention to the legislative fight over college loan reform. That’s a shame, because it provided a memorable case study of how and why the bureaucratic, interest group, and political forces of the capital so often sabotage even the best ideas.

The cost of a college education increased faster in the eighties than that of cars, food, or houses—and far faster than family income. College costs now take up more than one in every five dollars a family earns—up from one in seven in 1980. During the same period, America revolutionized the way it finances college: In the seventies, two-thirds of all aid came in the form of grants; today, two-thirds comes in the form of loans. Few public policy developments have been as sudden, massive, and negligibly acknowledged. (If the significance is not clear, consider the difference between someone giving you a car and lending you the money to buy one.)

The college cost explosion has begun to undermine some basic American principles. From 1982 to 1989, the percentage of private college and university students from wealthier families jumped from 50 percent to 63 percent. The 30-year trend of expanded opportunity, inaugurated by the GI Bill after World War II, has begun to reverse.

Income-contingent loans—or pay-as-you-can loans, as I’ll call them—can change the decision calculus of a low-income high school student. Right now, he might look at loans and decide that college is not a sensible wager. His time horizons are short, and he finds it nearly impossible to envision a future lucrative enough that he could pay off a loan. He sees around him men and women enslaved by shady high-interest loans and few instances of high-wage, well-educated workers. Others in low-income communities might have developed an entitlement mentality that makes them eschew loans and “wait” for grants. In either case, with a pay-as-you-can loan, the government can say: “You have no excuse not to go to college. If you take out a loan, graduate, and still earn nothing, you will pay nothing. But if education pays you dividends, as it does for most people, you will have plenty of cash with which to gratefully repay society.”

The benefits are not limited to the poor. Consider middle-class parents who know that their daughter could get into a top-tier private school but fear they can’t afford the tuition. Under pay-as-you-can, their child can take out loans knowing that if she doesn’t rake it in, she will still have affordable payments.

Yet for all the potentially revolutionary effects on access, what appealed most to Clinton about pay-as-you-can loans was the connection to service. He believed that more college students might have pursued careers in teaching, social work, or law enforcement over the past 15 years had they not been so loaded down with debt. Clearly, debt levels have affected a range of life choices. In 1985, 32 percent of all college graduates said debt pushed them to rent, not buy, housing; in 1991, 47 percent said so. In 1985, 25 percent said debt forced them to work two or more jobs; by 1991, almost 40 percent said it did. The average indebtedness of medical students, for example, rose from $14,622 in 1979 to a staggering $45,840 in 1990, increasing pressure on graduates to enter high-paying specialties such as dermatology rather than less profitable but essential fields like family medicine or pediatrics. So the Clinton loan reform really had an extraordinary premise: Government should make it easier for people to earn less. As Clinton said in 1993, “People are not free if they cannot take advantage of what the Almighty gave them.” Ronald Reagan said that if he could get government off our backs, Americans would show their innate creativity and economic energy. Clinton’s collegeaid reform suggested that if government could get financial debt off their backs, Americans would be free to serve others.

The Money Chase

Heather Doe is a fictitious college student. She’s a junior at Paiselley College, where she studies semiotics, feminist architecture, and literature of the Amazon. After graduation she hopes to do something socially useful as long as it’s not too hard.

Heather’s father is a junior executive at a major biotech firm, and her mother manages a local franchise of Mail Boxes, Etc. Together the Does earn $80,000, not quite enough to cover Paiselley’s $25,000 tuition and expenses. The school gave Heather a $7,000 grant, plus a $1,000 scholarship from the local church, and her parents put up $11,000. For the rest, she went to her local bank, Union National Federal, and got a $5,000 Stafford loan. She took out loans of varying sizes all four years of college. The Stafford loan has three advantages for Heather. Because the loan is guaranteed by the federal government, she gets a low interest rate (6.2 percent in 1993); she doesn’t have to provide collateral; and she doesn’t have to pay the interest that accrues while she’s in school. After graduation, she will pay $230 a month for 10 years to retire her $20,000 debt. Union National Federal executives like the Stafford loan, too. They know that if Heather flees to Nicaragua to work in the coffee fields and defaults, the U.S. Treasury will cover the debt.

Until the sixties, banks had been understandably reluctant to loan money to students: They had no jobs, no credit history, no collateral, no proof of future earnings, and strange haircuts. Congress, however, wanted young people to go to college anyway. It passed the Higher Education Act of 1965, which gave special incentives—the interest subsidy and the loan guarantee—to those banks willing to help. Within two decades, student loans became highly profitable, more consistently lucrative than even mortgages or car loans.

To further ensure that banks would provide loans, Congress created a complex network of backup entities to give lenders a comfortable arrangement. A system of state-sanctioned “guaranty agencies” would collect defaulted loans, so banks wouldn’t have the hassle. If Heather defaults on her loan, Union National Federal would be reimbursed by a guaranty agency which—follow the bouncing check—would be largely reimbursed by Uncle Sam. That guaranty agency would send collectors after Heather. If the guaranty agency succeeds in getting her to cough up the $20,000, they are allowed to pocket $6,000 of it. This is on top of a one percent fee they collect for every loan they guarantee. Like the banks, these guaranty agencies, some run by state governments and others operated as non-profit companies, bore little risk.

In 1972, Congress decided that Union National Federal shouldn’t have the bother of holding on to Heather’s loan, even if she wasn’t a deadbeat. They set up a federally chartered corporation called the Student Loan Marketing Association, a “secondary market” better known as Sallie Mae. As soon as Heather graduated, Union National Federal could sell her loan to Sallie Mae and never deal with collections at all. As of 1992, Sallie Mae held $20.8 billion in loans—one-third of all those outstanding.

The system has become a classic example of what columnist Michael Kinsley calls capitalizing profits while socializing risk. The financial players earn the profits while the public takes the risks. And Sallie Mae does seem to be doing awfully well for a quasi-governmental entity. Its luxurious Georgetown offices have the power-quiet of a major law firm; its corridors are decorated with immense modern paintings and sculptures bearing names like The Drama of Space and The White Peacock. The glass doors never seem to have fingerprints. The president of the United States appoints one-third of Sallie Mae’s board of directors, and yet its stock is traded on the New York Stock Exchange and its CEO, Lawrence Hough, earned $1.3 million in 1992.

By 1993, the system had become so jumbled, Rube Goldberg himself would have had to hire an efficiency consultant to figure it out. There were roughly 8,000 lenders, 50 secondary markets, and an equal number of guaranty agencies. A diagram of the current student-aid system resembles a pinball machine, with loans getting bounced helter-skelter among students, schools, guaranty agencies, secondary markets, and the Department of Education. At large schools that draw students from all over the country, a financial aid officer had to deal with hundreds of different entities to keep track of the loans. The U.S. Treasury paid $6 billion in subsidies in 1992 to generate $15 billion in loans. That’s a lot of “overhead.”

What does all this have to do with Clinton’s primary concern, pay-as-you-can loans? Most analysts who had tried to devise flexible repayment plans concluded that it couldn’t be done through the banks. For one, the collections would have to be done by someone with accurate, up-to-date information about how much a graduate was earning. Only one entity fits that description—the IRS. Second, pay-as-you-can loans would complicate life for the banks. And the banks had made it clear over the years that any new burdens would drive them into simpler lines of work.

If the government was going to switch to pay-as-you-can loans, then, it made sense to adopt simultaneously another radical reform: eliminating the entire student-aid industry and adopting “direct lending.” In other words, the government would give money directly to Paiselley College, which would then give it to Heather. She would repay the IRS at tax time. No banks would be necessary to originate the loan, or collect the payments; the secondary markets and guaranty agencies could eventually curl up and die.

John Dean was not happy about Clinton’s plan to “scrap” the student-aid system. Dean, who must occasionally introduce himself as “John Dean, not the Watergate felon,” is the Washington lobbyist for the Consumer Bankers Association, representing more than 500 banks with a direct stake in the federal student-loan program.

Unlike high-profile Washington influence peddlers such as Michael Deaver, Dean is a more nuts-and-bolts—and often more effective—Washington lobbyist: a former Republican congressional staffer with enough expertise not just to visit with the congressman but to write his speeches and draft his legislation. During the 1992 campaign, while most of the world was following whether candidate Clinton had time to bed a lounge singer in between jogs, Dean monitored every word he uttered on student loans. At several points, Dean sent copies of speeches, debate excerpts, and newspaper articles to banks around the country to alert them to impending troubles. Once Clinton won, Dean slipped questions to key Capitol Hill staffers so senators would ask about direct lending at the confirmation hearings of Clinton’s appointees.

Clinton’s election also awakened the guaranty agencies. Daniel Cheever was president of the American Student Assistance Corporation (ASA) in Boston, the main guaranty agency of New England. Cheever had just joined ASA after being president of Wheelock College in Boston, and thought the current student loan system was a mess. But he also realized that Clinton’s plan involved direct lending, which potentially meant ASA’s extinction. So ASA hired the Widmeyer Group, a Washington-based public-relations firm. In January 1993, ASA formed a coalition with two other major guaranty agencies to block Clinton’s student-loan reform which, in the grand tradition of lobbying doublespeak, they named the Coalition for Student Loan Reform. The two other agencies, based in Ohio and Indiana, would handle the heavy-duty Washington lobbying; ASA’s Cheever would be in charge of “message.”

Cheever had several attributes that suited him well for that role. As a former college president, he had credibility. More important, Cheever had ties to Senator Ted Kennedy. ASA handled most loans for students in Massachusetts. This would be quite handy, because the committee Kennedy chaired, Labor and Human Resources, had jurisdiction over national service and student-aid reform. Cheever had gone to high school and college with Nick Littlefield, Kennedy’s chief of staff for the Senate Labor Committee. Finally, one of the people put on the ASA account at the Widmeyer Group was Lori McHugh-Wytkind, a former Kennedy aide.

By mid-January, rumors started circulating that the administration was going with full-scale direct lending. This sent the banks into a minor panic. Sallie Mae’s stock began diving. On February 17, Clinton released his first budget, which included a switch to direct lending. The next day, terrified traders on Wall Street dumped so much Sallie Mae stock that the New York Stock Exchange had to halt trading.

Frantic, executives hired more and more Washington lobbyists—particularly lobbyists with Democratic Party connections. The student-loan lobbying roster read like a seating chart at a Democratic fund-raiser.

The USA Group of Indianapolis, the largest guaranty agency in the country, hired Akin, Gump—the lobbying firm of “Mr. Democrat” Robert Strauss, the former chairman of the Democratic Party, and Vernon Jordan, head of Clinton’s transition operation. The firm assigned the account to Kirk O’Donnell, a former top aide to Tip O’Neill. USA Group also hired Walker/Free Associates, run by James C. Free, a former Carter White House official and Clinton golf partner.

The New England Student Loan Marketing Association, the secondary market that buys up many student loans from New England banks, hired Patton, Boggs & Blow, former law firm of Ron Brown, the ex-Democratic Party chief who had become Clinton’s secretary of Commerce.

The Student Loan Funding Corporation of Ohio, a major secondary market, hired the firm of Powell Tate, founded by former Carter press secretary Jody Powell, as well as Winston Strawn, a Chicago-based firm that once housed Walter Mondale. Winston Strawn assigned the account to Dennis Eckhart, who had until a few months earlier been a congressman from Ohio.

But no one had more lobbying clout than Sallie Mae, which pulled together an all-star team of great Washington influence-peddlers. Following Sallie Mae’s stock crash, CEO Hough decided they would have to be extremely aggressive. “When you lose $3 billion in wealth you can’t just say to shareholders, ‘Hey, don’t worry,”‘ Hough said. “You have to do something.” The company retained Harry McPherson, special counsel to President Lyndon Johnson and a top Washington rainmaker, who got Hough an appointment with Al From, the Democratic Leadership Council founder, who was heading up Clinton’s domestic policy transition team. To lobby the White House, it hired former Carter administration official Anne Wexler and her colleague at the Wexler Group, Dale Snape. On one occasion Wexler enlisted the help of another of the firm executives, Betsey Wright, a close Clinton aide in Arkansas for years and arguably the most plugged-in lobbyist in Washington. Perhaps Sallie Mae’s most important asset was Jerry Hultin, the man who had run Clinton’s campaign in Ohio and was a friend of the president’s and of Hillary’s from law school. Hultin accompanied Hough to several meetings with key Clinton administration officials.

Bill Clinton assigned scrapping the existing student-loan system to two savvy, professional politicians: Secretary of Education Richard Riley, who had overcome a devastating physical disability to become one of South Carolina’s most popular governors, and Deputy Secretary Madeleine Kunin, a three-term governor of Vermont.

One of the first things Kunin did when she arrived in Washington was read the General Accounting Office report on the Department of Education, which stated that the student-loan program was at “high risk” of catastrophe because of colossal management problems. “So this is what we’ve gotten ourselves into,” Kunin said to Riley the next time they met. Riley and Kunin soon found out that some Department of Education staff—i.e., the bureaucrats—had no desire to throw out the student-loan program with which they had become comfortable, and had serious doubts about whether ability-to-pay loans and IRS collection could work. “Like any bureaucracy, they had built relationships with existing players,” Kunin said later. The permanent staff at the Office of Management and Budget believed it would be nearly impossible to administer a massive income-contingent loan program. And the IRS careerists feared that handling student loans would drain resources from their mission of collecting taxes. At least, Riley and Kunin thought, they could count on support from the colleges. But that, too, turned out to be a false assumption.

Higher education is represented in Washington by more than a dozen trade associations, each with a specific constituency—big state schools, private colleges, community colleges, trade schools, financial aid officers, Jesuit schools, and medical schools. Each had a slightly different reason for disliking the Clinton plan.

The private schools, as represented by the National Association of Independent Colleges and Universities, loved ability-to-pay loans because the loans would help students afford their higher tuition. But they seriously doubted the Education Department could manage a “direct lending” program. Under direct lending, the department would put up the cash for Heather Doe’s loan and Paiselley College would be responsible for disbursing it. College officials were nervous about taking on that role, particularly in partnership with the notoriously incompetent Education Department, which, among other things, had never quite figured out how to keep track of millions of outstanding loans.

And the American Association of State Colleges and Universities (AASCU), which represents large public schools like the University of California and the State University of New York, had concerns that ran opposite to those of the private colleges. AASCU officials liked direct lending, but distrusted ability-to-pay loans and national service loan forgiveness.

Staff Infection

Why would schools dislike easier repayment terms? The large public schools viewed not loans but Pell grants—the no-strings-attached scholarships for the poor—as the key to maintaining broad access to school. After 15 years of deficit-driven politics, they looked at student-aid budgets as a zero-sum game: Loans go up, grants go down. And under Bill Clinton, loan volume could explode.

Clinton’s most important ally was 31-years old, wore sandals to the office whenever possible, kneaded Silly Putty to release tension, and worked for a man with very long earlobes. Bob Shireman was the education aide to Senator Paul Simon of Illinois, who would lead the Senate fight for ability-to-pay loans and direct lending.

Shireman joined Simon in the fall of 1989, and immediately started searching for an issue with which he could make his mark. He settled on income-contingent loans and direct lending. This change, he insisted, could save billions of dollars and help poor and middle-class families. The idea, Shireman wrote Simon, also had one major tactical advantage: an easy-to-demonize foe—the banks. Sure, there’d be a fight, but “without a fight,” Shireman said, “there is not media attention.”

Simon didn’t warm to the idea at the time, for fear that it had too many technical problems. But a year later, he was breezing though the Congressional Record—he is one of the few senators, in fact, one of the few human beings, who reads it cover to cover—and came across a statement from Republican Senator David Durenberger of Minnesota advocating direct lending and income-contingent loans. Simon tore it out, and scrawled on it, “Talk to me, Bob.” Simon decided he wanted to team up with Durenberger.

In January 1993, Clinton was on the verge of deciding whether to embrace Simon’s direct-lending approach—and Shireman was busy turning up the heat. He and his colleagues had already succeeded in putting the industry on the defensive. In January, Simon’s press secretary, David Carle, got Jack Anderson and Michael Binstein to do one of their syndicated columns on the “middleman racket” run by Sallie Mae. Sallie Mae officials, wrote Anderson and Binstein, “recently traveled to the home of one transition official to make the case for the status quo.” The column implied that the lobbyists had showed up at the doorstep in the middle of the night (actually, domestic policy advisor Bill Galston had invited them to his Washington house).

Then Shireman got a delicious opportunity. He learned that John Dean’s Consumer Bankers Association and another group representing guaranty agencies planned to hold a “Lobby Day” on March 2. Local bankers were to come to town, learn about direct lending, and then visit their congressmen. Shireman and Carle organized a campaign to highlight the lobbying “onslaught.” Shireman drafted a hard-hitting letter to senators warning that the greedy bankers would soon be in their midst. Carle contacted reporters with the urgent tone of a botanist alerting colleagues that the 37-year cicadas were emerging from their pods.

By the day of the event, a flustered John Dean had stopped calling it “Lobby Day” and began insisting it was a “legislative workshop.” Although Simon’s crew had conjured images of high-powered influence peddlers descending like vultures, most were the mid-level bank executives who deal with the student-loan program. Imagine their confusion when they discovered three camera crews, with brilliant lights, taping their arrival at the Holiday Inn Crowne Plaza in downtown Washington as if they were mobsters testifying before a grand jury.

The consumer bankers distributed a 13-point tip sheet on lobbying, which mostly suggested common courtesies—”Always say thank you”—but did recommend campaign contributions and other signs of thoughtfulness. “If your legislator has won a victory for your industry, it is not uncommon to send key staffers flowers or tickets to the theater with a polite note of thanks….”

Meanwhile, direct-lending advocates gathered in the Senate Radio and TV Gallery to denounce the sinister lobbyists before a packed press conference. The tactic worked magnificently. “More than 100 bankers flocked to Capitol Hill last week in an effort to combat President Clinton’s plan to overhaul the government’s student loan program,” began The Wall Street Journal story about direct lending. “The MacNeil/Lehrer News-Hour” ran a piece a few days later that was so anti-industry that it used illustrations of little green money bags to illustrate the bloated salaries of Sallie Mae executives.

The student-aid fight showcased all of the colorful species of lobbyists in the special-interest aviary. In 1993, 15,000 people worked as lobbyists; many had passed through the “revolving door” from government to the private sector. This oft-noted practice creates what is truly one of the most significant forces in Washington. The press has reported odious examples of experts cashing in on friendships or knowledge of the system (as in the case of a U.S. trade representative who went to work for the Japanese government). While this certainly happens, the higher-education community involved in the student-aid reform battle illustrates a subtler variant of the phenomenon—what might be called the “cousins-marrying syndrome.”

There’s often something to be said for cousins marrying. They have similar backgrounds, overlapping guest lists at the wedding, etc. But society discourages inbreeding because it spawns kids with three eyeballs. The problem with a community like higher education—where staff regularly moves from the Hill to the Department of Education to trade associations—is not corruption but, potentially, stale thinking and stasis. Objectivity in policy making becomes more difficult. For instance, is the Hill staffer who knows he some day wants to work for the college association going to deny it money in the legislative process? Does the Education Department staffer who knows he’ll be having drinks Tuesday night with the college lobbyists want to sign off on a policy that will hurt the organization represented by his pal near the nachos? Was the department so focused on direct lending—as opposed to ability-to-pay loans—because the higher-ed lobbyists were? Were they living in an echo chamber, hearing only their own voices?

The most significant lobbying trend of the nineties, however, is not the revolving door or influence-peddling or the cousins-marrying syndrome. It is organized grassroots lobbying. The phrase conjures images of Ralph Nader interns in cutoffs and solar energy T-shirts pounding on doors during their summer vacations; but in the eighties and nineties, private industry borrowed the techniques pioneered by environmental and public-interest activists to generate massive issue-oriented political campaigns. Even big Washington firms such as Patton, Boggs & Blow and Hill and Knowlton have developed “grassroots capabilities.”

Primitive grassroots campaigns involve mobilizing the members of a group, as when the Consumer Bankers Association got banks to write legislators opposing direct lending. But many grassroots campaigns focus on getting credible, disinterested third parties to lobby for the client—a political bank shot. The student-aid industry realized it had little credibility with lawmakers, so the major players had others make their case for them. Who had the most credibility? Financial aid administrators, the grunt-level men and women who actually gave out the aid, dealt with students, and would have to implement a direct lending system. Sallie Mae sent “self-tutorials” to 3,000 schools so that they could estimate how much direct lending would harm their schools. Teams of technical experts visited dozens of schools and held misleading seminars with 1,000 financial aid officers on the effects of direct lending. They whipped out studies they’d done at other schools which—surprise!—determined that colleges would have to hire extra staff, buy computers, open new offices—at an average cost of $219,000 per year.

The blitz worked. On March 24, the Iowa Association of Student Financial Aid Administrators wrote colleagues, urging them to oppose full-blown direct lending. On March 31, the Florida aid officers joined them, and soon so did their colleagues from Kansas. By April 6, the Southern Association of Student Financial Aid Administrators had endorsed a go-slow approach on behalf of officers in nine Southern states. Joe Russo, the financial aid director at the University of Notre Dame, circulated a daunting paper called “Ninety-five Questions to Help Plan the Direct Loan Program.” In many cases, the financial aid administrator at a college opposed full-blown direct lending, while the president of the same school supported it.

What would prompt the lowly financial aid officer to buck the president of his or her own school? College lobbyists grumbled that it was a case of simple corruption: The aid officers had been bought off by Sallie Mae, the guaranty agencies, and the banks, which often helped finance the aid officers’ annual conventions. To prove that claim, the lobbyists faxed around leaflets showing that USA Group, the largest guaranty agency, sponsored the “Fiesta of Spicy Cuisine and Mariachi Music” at a San Antonio convention of aid administrators.

The aid officers had also developed loyalty to the industry players for practical reasons. As colleges cut financial aid office budgets, it was Sallie Mae and the banks that often came to the rescue with new computer software and training programs. The aid officers looked at it this way: Maybe direct lending would work, maybe it wouldn’t. But if it didn’t, the results would be catastrophic for students and schools, and aid officers would be the ones to get blamed—and this time they wouldn’t have Sallie Mae to back them up.

In April, ads began appearing in college newspapers around Ohio from a group called Students for Loan Reform. THE GOVERNMENT NEVER ASKED FOR YOUR OPINION, BUT DON’T LET THAT STOP YOU, said the headline. The ad stated that the new loan program “could mean increased tuition, reduced student programs, and more government red tape. (Maybe even the IRS collecting our loans.) What’s worse, if the program fails, you could be without means of getting money for college.” The ad listed an 800 number; students who called it were patched immediately through to their senators’ offices. It turned out that Students for Loan Reform was set up and financed by the Ohio Student Loan Corporation, the secondary market in Ohio, and one of John Dean’s clients.

Shireman knew that the best way to counter the industry’s grassroots efforts was to organize his own. In the modern legislative process, senators regularly push their own legislative agenda by generating political activity in the states of other senators. They realize that their colleagues, as friendly as they might be, would more likely listen to their constituents than to a senatorial golf buddy. On May 26, Shireman brought a dozen key education lobbyists to a conference room in the Dirksen Senate Office Building to plot how to “reach” each senator. “Let’s go through the Senate Democrats by state,” Shireman began. “Heflin and Shelby. I met with Heflin’s staff a few days ago. He’s close to the banks in his state. He’s worth some contacts. Does anyone have any ideas?” “There are two black colleges in Alabama,” said Joyce Payne of the National Association of State Universities and Land Grant Colleges, which represents many large state universities, including public historically black colleges. “Mikulski,” Shireman continued. “You can’t tell by talking to her staffers.” “We should have a face-to-face with Mikulski,” Nick Littlefield, of Kennedy’s office, suggested. “We’ve got a meeting with 20 Maryland college presidents to get them warmed up,” added Jane Wellman, the representative from the private colleges, the National Association of Independent Colleges and Universities. But Shireman knew that one must take the utmost care when pushing a senator’s buttons. He warned Wellman not to have Johns Hopkins University take a lead in the effort. “She doesn’t like them,” he said. “She likes Villa Julie or something,” he added, referring to a small community college in Stevenson, Maryland. “Is Villa Julie going to be there?” “Yes. We’re getting the dinky ones to call her,” Wellman assured him. At one point, Senator Simon entered the room, wearing a red bow tie, and sat next to Shireman. “I’m glad you’re doing this,” Simon said. “We have to understand that our friends on the other side are doing the same.”

Simon rattled off a few suggestions on how to pressure particular senators. He suggested getting Bill Danforth, president of the Washington University in St. Louis, to call his brother, John Danforth, the Republican senator from Missouri. “I know him real well,” Simon said, “but it really ought to come from you. The more grass roots you can generate, the better.”

When Bill Ford, chairman of the House Education and Labor Committee, sat down to push the direct lending bill through, buried on page 59 of the “chairman’s mark” was a one-sentence change that almost no one on the committee noticed, and no one in the press reported—yet it signaled one of the most significant retreats of the entire legislative process. A few weeks before the markup, the staff of the House Ways and Means Committee, which oversees the IRS, had read the Clinton administration’s proposal for IRS collection, and, to use a common legislative expression, freaked out. The Ways and Means staff informed Ford and the White House that if anyone was going to change the responsibilities of the IRS, it would be Ways and Means, thank you very much. The administration could feel free to do “a study,” and if the study favored IRS collection, the White House could make a recommendation to Congress. Then, and only then, the Ways and Means Committee would decide. The White House staff, never telling Clinton, who might have understood the importance of the provision and decided to fight for it, quickly backed down.

The problem was that the White House was relying on Ways and Means Chairman Dan Rostenkowski to push through much of its economic plan. Staffers didn’t feel as though they could butt heads with him over something this seemingly small. Amazingly, no one in the administration argued the point with Rostenkowski. Ford’s committee was happy to drop the provision, too, fearing—in the tradition of petty jurisdictional feuds—that if Ways and Means got involved, it would eat the whole national service-student loan enchilada.

But this tiny provision was crucial to the success of the whole reform. Without a significant IRS role, it would be difficult to do income-contingent loans and keep the program from turning into the hard-to-collect boondoggles other student loan initiatives had become. Only the IRS could accurately and efficiently assess a person’s income and be sure to collect. “It was a lousy cave-in,” said Joe Flader, a staff aide to Rep. Tom Petri, a Republican who had long pushed for ability-to-pay loans.

Over the next two months, the industry battled with direct lending supporters through committee markups, hearings, and floor votes. The Senate voted to try direct lending in half the schools and bank-based lending in the other half. At a climactic House-Senate conference, legislators haggled over the speed of a direct lending phase-in, how much money it would save the government, and how the banks would react.

In the end, the administration largely won what it had sought: authority to switch most colleges to direct lending over the next five years and to establish a pay-as-you-can loan system. The new loans allow individuals to make payments equal to four percent of their income if they have a $1,000 debt. The payment rate rises as the debt burden gets larger. A student with a $30,000 income and a $50,000 debt would pay $345 per month instead of $581 under the standard plan. Someone with a low income and a high debt could end up with a big chunk of loan outstanding at year 25—which the government would then wipe out. The one clear defeat for Clinton was his failure to get a major role for the IRS. A year after the bill’s passage, the IRS and the Department of Education still had not come up with a plan for IRS collection. So the question remains: Will the administration’s political failure on that one provision so hobble the program that the victory of pay-as-you-can loans will be meaningless?

Remarkably, none of these important changes had been discussed in the legislative process. Not one senator discussed ability-to-pay loans at the hearings or markups. What little press coverage there was invariably focused on direct lending. The administration merely sought a few general statutory sentences giving them authority to construct a new repayment system. And that’s what they’ve got. How could that be? With all the acrimony and conflict in Washington, why was there no public battle over this major shift in education policy? Why does so much conflict seem to focus on the least important elements?

First, the White House and the Department of Education clearly avoided being explicit on controversial issues. It was their political judgment that they could not get either piece of legislation passed otherwise. They may have been right. And that points to a great misunderstanding about “gridlock” in Washington. The problem is not that Congress is incapable of passing laws, but that it is so easy for small groups of people to block or distort legislation that those pushing reform readily agree to self-defeating compromises.

More important, interest-group politics drove the process away from issues of most concern to the broad public. Direct lending became the dominant issue because plump oxen were being gored. The financial industry fought, the direct lending proponents fought back, the press covered the conflict—and important questions of education policy got ignored. Clinton’s student aid reform is one of the most important presidential initiatives in decades. It attempts not only to put more cash in students’ hands, but to change the incentive structure that governs a young American’s life choices. It’s a shame that such an enlightened policy had to be devised under cover of darkness.

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Steven Waldman

Steven Waldman is chair of the Rebuild Local News Coalition, cofounder of Report for America, and a contributing editor at the Washington Monthly.