September 11, 2009 / 1:43 AM / 10 years ago

Boost seen for Dems' student loan plan, House vote near

WASHINGTON (Reuters) - Democratic lawmakers seeking a thorough overhaul of the $92 billion U.S. student loan market were expected to score a win in the days ahead from a favorable finding by the Congressional Budget Office.

With a House of Representatives floor vote anticipated next week, the CBO was expected to say the Democrats’ bill would save taxpayers more money than a rival plan being put forward by student loan companies, a congressional aide told Reuters.

The CBO statement will likely mark a turning point in a long-running struggle over the biggest shift in U.S. higher education finance in 35 years.

Sallie Mae, Student Loan Corp, SunTrust Banks, Nelnet Inc and other lenders have been seeking support for their own reform plan. It would preserve a greater role for them in the lending business.

But the CBO finding will show that the industry plan would generate about $70 billion in savings, or $17 billion less than the Democrats’ bill, the aide said.

That could make it difficult for lawmakers to support the industry plan over the Democrats’ bill, the passage of which would mean a step forward for President Barack Obama’s broad effort to tighten banking and capital market regulations in response to the 2008-2009 financial crisis.

Secretary of Education Arne Duncan and Democratic lawmakers will hold a news conference on Tuesday to urge passage of the bill, the U.S. Education Department said on Thursday.

The bill “will generate almost $100 billion in savings over the next ten years that will be used to increase ... scholarships, keep interest rates on federal loans affordable and create a more reliable and effective financial aid system for families — all at no cost to taxpayers,” it said.

Sallie Mae spokeswoman Martha Holler said lenders are “waiting for an official score from CBO. It is premature and unproductive to speculate about it before it is even released.”

BILL APPROVED IN COMMITTEE

The House Education Committee in July approved the Democrats’ bill, which would shut down the $55 billion Federal Family Education Loan Program (FFELP) and shift most student lending into a program run by the Education Department.

The bill is expected to be approved by the House, where Democrats hold a substantial majority, analysts said. That would send it on to the more closely-divided Senate.

“Nothing is final in Washington until it happens ... Yet in our view the odds favor Congress eliminating FFELP,” said Jaret Seiberg, a policy analyst at research group Concept Capital.

For 35 years, FFELP formed the core of U.S. higher education finance and a lucrative business model used by private-sector lenders of government-guaranteed student loans.

The profitability of the FFELP model fell sharply, however, when the Bush administration cut subsidies to lenders.

FFELP lenders were embarrassed by a 2007 scandal in which some were found to have given money and gifts to college financial aid officers to drum up business.

Then it took a devastating hit during the 2008-09 financial crisis, when the secondary market for student loans froze up.

That forced Congress to step in with a bailout so college students would be able to go to school.

The crisis also gave long-time Democratic foes of FFELP an opening to step in with reform legislation. They say that closing FFELP would save money and protect higher education finances from the volatile ups and downs of Wall Street.

GOP, LENDERS PUSH BACK

Republicans and lenders are fighting to preserve FFELP, arguing its shutdown would eliminate thousands of jobs and that it has had a good record of serving college students.

“The student loan community respectfully urges the president to rethink his student loan proposal,” said Kevin Bruns, spokesman for the lender lobbying group America’s Student Loan Providers. “The legislative process still has a way to go ... Serious options are on the table.”

Minnesota Rep. John Kline, the senior Republican on the House education committee, said a separate CBO analysis requested by Republicans shows the Democratic bill “will cost taxpayers billions more than Democrats have acknowledged.”

The Democrats’ bill would leave room for some private firms to stay in the market as student loan servicers, but this line of business would be much smaller than originating loans. Some financial firms have already exited the student loan sector.

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