Sallie Mae Resists Obama's Student Loan Reforms

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The New College Math

An NPR series looks at families and students who are recalculating how much they can spend during a recession; colleges trying to fill seats; and an expansion in federal aid that could determine for some whether they attend college at all.

The Obama administration says it will save tens of billions of dollars by taking over the student loan industry. Lenders have resisted the proposal by saying students should have a choice between government loans and those provided by the private sector. But now, lenders are fighting back against that plan with a new argument — that it would kill jobs.

Earlier this week, the nation's largest student lender, Sallie Mae, held a town hall for the 700 employees at its loan servicing center in Wilkes-Barre, Pa. The company announced triumphantly that it is returning 2,000 call center jobs to the United States from overseas.

"We realized that the value of bringing these jobs back to the U.S. means more to us than any savings we could achieve by keeping that work overseas," said Martha Holler, a Sallie Mae spokeswoman.

The lending giant says the move was prompted purely by patriotic spirit. So is there any connection to the administration's plans to revamp the industry by issuing all federal student loans through the Department of Education? Holler would say only that Sallie Mae wants the administration to rethink that plan.

In fact, supporters of the current system, which sends most loans through banks, are mounting a quiet lobbying campaign to save the industry. And in this economy, preserving local jobs could be a potent argument.

"I don't think the government is aware that we're talking about thousands of people losing their jobs," says Mary Kosin, who directs financial aid at Luzerne County Community College, just down the road from Sallie Mae. "In a time where we're told the economy is so bad, and it could take years to recover, what is the logic with that?"

Many local officials agree, including New Mexico State Treasurer James Lewis. Lewis, a Democrat, has sent a letter to the president warning that New Mexico would lose more than 170 jobs to the plan.

But administration officials say the jobs argument is a red herring. Bob Shireman, senior adviser to Education Secretary Arne Duncan, says the government only wants to issue the loans. Private sector workers would still get paid for servicing them.

"There are the same number of servicing jobs, which means collection on the loans, sending out the bills, answering borrowers' questions on the phone," Shireman says.

Beyond the jobs issue, private lenders say they are good neighbors and offer discounts on loans to students.

Kosin of the community college says her students got big breaks from local lenders. She fears that could disappear if the government takes charge. She wants students to have a choice between loans provided by the government and those that go through private lenders.

The Education Department's Shireman says it is wrong to depict this as a choice between the free market and a government bureaucracy. The government currently takes all the risk by guaranteeing the loans that go through banks.

"What some of these companies really want is, they want the taxpayers to take the risk ... yet the company wants to keep the interest income, earning a small percentage on a huge pot of federally backed money," Shireman says.

The administration announced the loan overhaul to significant fanfare. But the lobbying against the proposal is growing. A spokesperson for the House Education Committee says the Obama proposal is just one of the options under consideration.

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