Obama reforms reach from campus to corner office

WASHINGTON, July 20 (Reuters) - The Obama administration's push to tighten U.S. financial regulation looks set to advance on two fronts this week -- student loans and executive pay.

The House of Representatives education committee on Tuesday will likely approve a measure to shield the $92-billion college student lending system from Wall Street's wild ups and downs.

Then on Thursday, the House Financial Services Committee is expected to approve a bill that would give shareholders a louder voice in setting the pay of corporate executives.

Both measures, if cleared in committee, would next go to the full House where Democrats hope for approvals prior to Congress' August recess. The Senate would take them up in September.

In the House and the Senate, the "likelihood of passage is high" for the student loan initiative, said Mark Kantrowitz, publisher of FinAid.org (www.finaid.org) and an education finance expert.

On the so-called "say on pay" proposal, Concept Capital financial services policy analyst Jaret Seiberg said:

"This will easily pass the committee and the full House. Opponents will need to fight to get the Senate to stop it."

President Barack Obama's financial regulation reforms have moved forward recently, although the Washington spotlight has shifted to healthcare and Supreme Court nominee Sonia Sotomayor.

Half a dozen hearings were held last week and 10 more are slated for this week on aspects of the Obama plan, unveiled on June 17 and the most far-reaching since the Great Depression.

House lawmakers were scheduled to meet on Monday behind closed doors with key financial regulators -- Securities and Exchange Commission Chair Mary Schapiro, Comptroller of the Currency John Dugan, and Federal Deposit Insurance Corp. Chair Sheila Bair -- to discuss the reforms.

They come in response to a severe financial crisis, and with the economy in its 19th month of recession. Strong profit reports last week from financial giants Goldman Sachs Group (GS.N) and JPMorgan Chase (JPM.N) hinted at recovery, but few analysts expect a swift end to the present, deep slump.

HEAVY FIRE DRAWN

Some aspects of the reform package have drawn heavy fire.

One is a proposal to give the Federal Reserve the job of policing systemic risk in the economy. Another is the proposed creation of a Consumer Financial Protection Agency.

The Fed as systemic risk regulator proposal is drawing fire from skeptical lawmakers, while the CFPA proposal is drawing fire from banking and financial industry lobbyists opposed to the legislation.

But the student loan initiative is seen by analysts as one the administration can win, although lenders whose business models would be hurt, such as Sallie Mae SLM.N, are continuing to push back with alternative approaches.

The bill coming before the education committee on Tuesday would fundamentally change the way students borrow money for college in America by ending the Federal Family Education Loan Program (FFELP) and shifting most student loans into the Direct Loan program run by the U.S. Education Department.

Congressional Democrats for years have wanted to kill off FFELP, which they accused of enriching lenders and linking higher education finance too tightly to volatile markets.

Major FFELP lenders such as Sallie Mae, Student Loan Corp STU.N (C.N), JPMorgan, and Bank of America (BAC.N) were hit hard two years ago when President George W. Bush signed legislation slashing subsidies they received under FFELP.

That action came after a 2007 scandal that revealed some lenders had given money and gifts to college financial aid officers to drum up business. The lender industry afterward never recovered its once formidable Capitol Hill clout.

Last year, the federal government had to intervene in the private secondary market for student loan-backed securities to prevent a financial meltdown that could have prevented thousands of students from starting school in the autumn.

LOAN SERVICING AHEAD

Under the Obama plan, some firms, including Sallie Mae, would still play a role in education finance by servicing Direct Loans for the Education Department. Some may also expand the market for private, non-government loans, Kantrowitz said.

"Others will exit education lending entirely," he said.

The "say on pay" bill coming before the financial services committee on Thursday resembles one that passed the House in 2007. It would give shareholders the right to cast non-binding, advisory votes on the pay packages of top corporate managers.

The current bill would also ban pay structures at financial institutions that encourage "inappropriate risks;" call for shareholder votes and more disclosure on special pay arrangements for managers in mergers; require that the compensation committees of all publicly traded companies be made up of independent directors; and require that compensation consultants hired by such committees be independent.

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