Subsidized College Loans Under Fire In Congress

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With Congress back from a two-week break, lobbyists of all stripes will be going to work on President Obama's proposal to do away with federal subsidies for privately sourced student loans.

Whatever happens now will not affect college loans for next fall. But in the longer term, the question is whether Washington ought to keep on subsidizing the private loans, something it has done since 1965.

The government spends three times more on the subsidies than on direct loans to students. President Obama wants to keep the direct loans going and pump up the Pell Grants — payments directly to students.

"To help pay for all of this, we're putting students ahead of lenders by eliminating wasteful student loan subsidies that cost taxpayers billions each year," Obama says.

The administration says those subsidies cost the government $94 billion.

On Tuesday, the United States Student Association plans to hit Capitol Hill with a phone campaign supporting the president.

Angela Peoples, the association's legislative director, says, "Most of the 50 states will be represented. And they're going to be calling their senators and their members of Congress."

The group Every Child Matters has a television ad campaign that rolls in student loans with other pro-child elements of the budget proposal.

On the other side, the companies and nonprofits that make subsidized loans have rolled out one of Washington's most popular buzzwords.

"We believe preserving choice is an important component of this program," says Jack Remondi, chief financial officer at the biggest private lender, Sallie Mae.

Kevin Bruns, of the industry coalition America's Student Loan Providers, wants to keep the two choices: direct federal loans and subsidized loans.

"All the Democratic candidates' health care proposals in the last election, and in this administration's health care proposal, are completely premised on consumer choice," Bruns says.

Beyond the big question of keeping or killing subsidized loans, this fight involves some serious trench warfare between congressional committees.

The budget committees get first crack at the administration plan as they finish up next year's budget. If they agree to move dollars from subsidized loans to Pell Grants, they'd be taking away power from the appropriations committees and giving it to the committees that oversee education.

Peoples says the Student Association is among those lobbying for a quick decision.

"I just remind these staffers and members that we're at a very rare time, and we have an amazing opportunity right now to invest in students and invest in America's future," Peoples says.

Bruns calls for caution. "The Hill strategy right now is to get the members of Congress to keep their powder dry," he says.

That would buy time for Sallie Mae to offer an alternative. Remondi says Sallie Mae's proposal would both preserve the industry and free up funds for the Pell Grants.

Another question: Would thousands of workers lose their jobs if subsidized loans go away?

Sallie Mae spotlighted jobs earlier this month. CEO Albert Lord announced the company will bring back 2,000 jobs from overseas, calling it "the right thing to do" in a recent CNBC interview.

Lord gave that interview from a Sallie Mae facility in Wilkes-Barre, Pa. Also present with Lord during that interview: Rep. Paul Kanjorski (D-PA), an influential Democrat on the House Financial Services Committee.



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