Republican congressman Tom Petri doesn't much care that once again, a Democratic president is directing the change that Petri has sought for more than two decades: replacing a federal subsidy program with direct lending from the government. In a February letter to Education Secretary Arne Duncan pledging his support for the administration's proposal, Petri said he has argued for years that direct lending "has proven to be a far better deal for both students and taxpayers. During the last Congress, revelations of the abuse, waste and fraud in FFEL further highlighted the drawbacks of the subsidized program." Petri recently recalled how he pitched his direct lending proposal to then-Gov. Bill Clinton of Arkansas, who was campaigning for the Democratic presidential nomination. "Clinton advanced the program and was quite successful, but it gradually was eroded by the dynamics" of competition from the private lending program, Petri said. Congressman Tom Petri of Wisconsin served as a Peace Corps Volunteer in Somalia in the 1960's.
Petri smells victory in student loan battle
Petri smells victory in student loan battle
By LARRY BIVINS • Gannett Washington Bureau •
May 16, 2009
WASHINGTON — Rep. Tom Petri doesn't appear to be gloating, but he does smile when asked if he feels victory is near in his longtime battle to reform the $85 billion federal student loan industry.
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And the Republican congressman from Fond du Lac doesn't much care that once again, a Democratic president is directing the change that Petri has sought for more than two decades: replacing a federal subsidy program with direct lending from the government.
President Barack Obama's 2010 budget proposal calls for terminating the Federal Family Education Loan Program, one of the two primary sources of government student loans. Under this program, private lenders make loans backed by the government.
The other program is known as direct lending, in which students get their loans directly from the government. Obama's plan essentially would make direct lending the only government loan source for students needing help with college tuition.
A recent Congressional Budget Office analysis determined that scrapping the FFEL program, under which 80 percent of student loans are made, would save the government $94 billion over 10 years, money Obama wants to use to increase the size of Pell Grants for low-income college students.
"That's a fantastic amount," Petri said following the CBO's release. "It illustrates how rich the subsidies were to the financial institutions which participated in the student loan program, and why they fought tooth and nail to keep the guarantee program going."
While student loan lenders haven't given up the fight, a recent move by Sallie Mae, the biggest of the lot, may have taken a lot of the punch from the lenders' attack.
The company, which had led resistance to attempts by Petri and others in Congress to eliminate the FFEL Program, has proposed a program that would allow private lenders to service loans issued by the government, a plan similar to what Obama wants to do.
"Rather than focus on the traditional policy debate between the FFELP and Direct Lending, Sallie Mae is working to develop practical concepts that constructively serve the best interests of all stakeholders," executive vice president Barry Feierstein said in an April 8 letter to the company's school customers.
Kevin Bruns, executive director of America's Student Loan Providers, which represents 80 percent of nonprofit state-based lending organizations, said Sallie Mae is looking out for its own interest.
"Every business has to figure out how it's going to operate in this new world," Bruns said. Sallie Mae's proposal, he said, represents a "fundamental change in the program because it means you're not using private capital."
Bruns' group objects to the Obama plan because, he said, it eliminates choice for students as well as services, such as default prevention counseling, that private lenders provide. Bruns also questioned the credibility of the CBO's savings estimate.
"I can almost bet my house that there is no way this is going to save $94 billion," he said, adding that the Office of Management and Budget estimates only $50 billion in savings.
Arguments on both sides of the issue likely will be aired at a student loan reform hearing that the House Education and Labor Committee has set for Thursday.
Petri, who sits on the education committee, said he is looking forward to the discussion. For two decades, he's been at the forefront of efforts to provide low-cost college loans for students. And, as a Republican, he's largely been out there by himself.
In a February letter to Education Secretary Arne Duncan pledging his support for the administration's proposal, Petri said he has argued for years that direct lending "has proven to be a far better deal for both students and taxpayers. During the last Congress, revelations of the abuse, waste and fraud in FFEL further highlighted the drawbacks of the subsidized program."
Petri recently recalled how he pitched his direct lending proposal to then-Gov. Bill Clinton of Arkansas, who was campaigning for the Democratic presidential nomination.
"Clinton advanced the program and was quite successful, but it gradually was eroded by the dynamics" of competition from the private lending program, Petri said.
Among the first schools to adopt direct lending in the mid-1990s was Marquette University, which honored Petri last month for his commitment to higher education. Nearly 60 percent of the school's 11,633 students are participating in the direct lending program, according to the financial aid office.
Going to direct lending helped the school consolidate and simplify its student loan operation at a time when "every little hometown bank participated in FFEL," said Marquette financial aid director Susan Teerink.
Contact Larry Bivins at lbivins@htrnews.com
