WASHINGTON — A bill to end private lenders' role in government guaranteed student lending — assumed to be on its way to quick enactment — has suddenly become a hotly contested debate.
In a procedural move, six Democratic senators have objected to including the bill as part of a health-care reform package, arguing it would not save the government as much money as estimated.
The move threatens to scuttle the bill even though its sponsors pledged Thursday to keep fighting.
"The federal government has been subsidizing these banks and wasting taxpayer money for far too long. It's time to end it," Sen. Tom Harkin, D-Iowa, a key sponsor of the bill, said at a press conference.
The House passed a bill last year that would end the Federal Family Education Loan Program, which lets lenders offer student loans at low rates through partial government guarantees. To bolster support for the bill, Senate leaders bundled it with health-care reform.
Estimates of the student loan bill's savings have dropped, however. It was originally expected to save the government $87 billion over 10 years, but now the projection is $67 billion. Still, Harkin emphasized that is a lot of money.
Several of his colleagues are not convinced.
In a letter Tuesday to Senate Majority Leader Harry Reid, six Senate Democrats — Bill Nelson of Florida, Tom Carper of Delaware, Blanche Lincoln of Arkansas, Jim Webb and Mark Warner of Virginia and Ben Nelson of Nebraska — raised doubts about the plan's savings and urged taking the time to look at other options. Student lenders, including the Virginia-based Sallie Mae, have a sizable presence in the six senators' states.
Among the options, banks are supporting a proposal that would let lenders make and service loans but would eliminate the need for subsidies by allowing banks to sell the loans to the government.
"Increasing our nation's commitment to higher-education funding is a priority, but we must proceed toward this objective in a thoughtful manner that considers potential alternative legislative proposals, while still delivering an equivalent amount of savings over the next 10 years," the senators wrote to Reid. "We look forward to discussing with you various ways to align the goal of increased education aid with our common mission of saving and creating as many jobs as possible."
John Dean, a special counsel for the Consumer Bankers Association, called savings the crucial issue for lawmakers.
"What has happened … is the savings that were believed to be there are no longer there," he said.
Dean said that if Congress took up other alternatives — which he said would not drastically change the original bill, known as the Student Aid and Fiscal Responsibility Act — the legislation would have an easier time passing Congress.
"An opportunity exists to consider minor modifications to Safra that I believe would result in the opportunity for the bill to pass in regular order in the near future," Dean said.
But Harkin, speaking to reporters after the press conference, said alternative plans still would unduly help banks.
"Any way they cut and slice and dice it, it is still a subsidy to banks, and that's what we want to get away from," he said.
The bill was previously thought to have sufficient support in the Senate, though not enough to attract the 60 votes needed to avoid a filibuster. It was assumed that pairing the legislation with health-care reform and putting both bills through reconciliation — a process that requires only 50 votes for passage — would improve its chances.
"I want to emphasize that we have a terrific opportunity here for a twin victory," Harkin said of including student lending with health-care reform. "We can use the education reconciliation bill … to eliminate billions of dollars in wasteful subsidies to banks and redirect that money to needy students and families in the form of increased Pell grants."
But mixing student lending with health care also gives moderate Democrats a stronger hand with their party's leaders, who cannot afford to lose many votes on health-care reform and may be unwilling to jeopardize support for the overall bill by including student lending reform.
Both Harkin and Rep. George Miller, D-Calif., said the addition of student-loan reform to the reconciliation process should add votes for health-care reform, not subtract them.
"Quite frankly I think the addition of the education reconciliation bill will help" add votes, Harkin said.
Chris Lindstrom, the higher-education program director for U.S. Public Interest Research Group, said if the bill is stripped from health-care reform it will fail on its own.
Student-loan reform "cannot be passed separately," she said. "From the get-go we've known that this would be a politically hard vote for a set of senators, and so from the get-go the strategy for winning has included the necessity for the bill to be a reconciliation bill, in other words a simple 50-person majority."
