WASHINGTON (Reuters) - The sponsor of a bill in the U.S. Congress to reshape the $92-billion student loan market told Reuters on Tuesday it will come to a vote soon and he disputed claims that its federal budget savings are overblown.
Representative George Miller, the Democratic chairman of the House of Representatives Education and Labor Committee, accused Republican critics contesting earlier budget savings estimates of “yet another predictable political gimmick.”
In an exclusive interview, Miller said “We are getting ready to take (the bill) to the floor of the Congress, probably right after the August break”.
“This is a real opportunity for us, in the aftermath of the crash of the credit markets, to redesign the student loan program so we can save almost $90 billion, and at the same time plow those savings back into benefits for students,” he said.
The argument over 10-year federal budget estimates comes as Miller moves closer to fulfilling a long-held goal of Democrats -- closing down the Federal Family Education Loan (FFEL) program.
The $55-billion FFEL program for close to 35 years was the core of a once-lucrative business in government-guaranteed student loans for groups such as Sallie Mae SLM.N, Bank of America (BAC.N), Citigroup (C.N) and JPMorgan (JPM.N).
If Miller’s bill is adopted, that business would end, following a turbulent two-year period of scandal, political adversity, and financial crisis for student lenders.
Passage would also represent a step forward for the Obama administration’s broad effort to tighten banking and capital market regulations following the worst financial crisis in generations and a deep and prolonged economic recession.
Republican allies of student loan firms have been fighting to preserve FFEL, but they are outnumbered in the House, where passage of the bill is widely expected. It was approved at the committee level last week in a 30-17 vote.
SENATE OUTLOOK ‘PRETTY GOOD’
The parties are more narrowly divided in the Senate. Miller said chances for Senate passage of the bill are “pretty good.”
Democratic backers of the bill want to end FFEL and shift most student lending into the Direct Loan program run by the U.S. Department of Education. They say that would save money for taxpayers by eliminating a subsidy now paid to lenders, while also insulating higher education finance from the volatile ups and down of the financial markets.
FFEL lenders were embarrassed in 2007 by a scandal in which some were found to have given money and gifts to college financial aid officers to curry favor with them. Then last year the government had to intervene in the student loan market to keep it from freezing up in the general capital market crisis.
Killing off the FFEL program would cut private lenders out of the loan origination end of the business. But Miller’s bill leaves room for some firms to carry on as loan servicers.
“They would continue to service some $500 billion of loans that they have on their books now,” Miller said.
“They would also service the direct loans that the government will be making to students. They’ve already bid on some contracts for servicing. Some of the banks and lenders have won those bids, and that would continue as the program goes forward. Many of them have come in and talked with us about that and they’re quite excited about that possibility.”
He said, “The servicing goes on for a long time ... It’s a very substantial piece of business. I only know that because they tell us they want to compete for it very heavily.”
On the budget savings dispute, Miller said Republicans “shamelessly decided to have a little fun with the numbers” in requesting a Congressional Budget Office (CBO) estimate of the legislation’s impact based on alternative risk criteria.
A CBO report was released on Tuesday. It repeated a finding from last week that said budget savings of $87 billion could be achieved over 10 years using standard assumptions. But it said the savings would be lower in a higher-risk scenario.
Kevin Bruns, spokesman for the lender lobbying group America’s Student Loan Providers, said:
“The Congressional Budget Office’s new estimate confirms that the savings projected from switching all student lending into the Direct Loan program are greatly inflated.”
He said that after counting the Direct Loan program’s administrative costs and “adjusting for normal fluctuations in economic conditions,” CBO found that projected savings would be $33 billion less than projected.
Miller said: “The CBO report didn’t raise any questions about the savings. It answered a question the Republicans asked, a hypothetical if you scored it some other way ... The CBO reiterated in their letter that the savings anticipated is about $90 billion.”
Reporting by Kevin Drawbaugh