Lobbyists Say Direct Lending Will Cut Jobs

For months now, journalists have been predicting that changes to the student loan industry are imminent. The Student Aid and Fiscal Responsibility Act (SAFRA) is supposed to expand the federal Pell Grant program and save money by making colleges loan federal money directly to students, rather than using banks as a (thriving) middleman.

In November the College Guide referred to “the likely switch to direct lending in the fall of 2010.” Last month Bob Shireman, deputy undersecretary of education, told the Washington Post that colleges are preparing to switch to direct lending. “I’m confident that we’ll see movement on this bill.” The Education Department reported that 96 percent of colleges were taking steps to accommodate direct lending.

Maybe not. According to an article in the New York Times however, lenders are watering down, if not destroying, the student loan bill by focusing on job losses:

An aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.

House and Senate aides say that the administration’s plan faces a far tougher fight than it did last fall, when the House passed its version.

Lenders like Sallie Mae, as College Guide pointed out earlier, work very hard. The company spent $8 million on lobbying last year. Their new tactic is to present the administration’s plan as a takeover that will put people out of work in tough economic times. Lenders are defending market competition.

Only about 35,000 people across the country work for private student loan companies. This is roughly the size of the population of Annapolis, Maryland.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer