Senate divided over fast-tracking bill to cut subsidies for student lenders

Despite brewing controversy over cozy relations between student lenders and higher-education officials, Senate Democrats are not yet convinced that subsidy cuts for lenders should be fast-tracked through the budget reconciliation process this year.

That route would give the Senate greater freedom to trim lender subsidies in the private student-loan program, since the final bill would need only 51 votes to pass and sidestep a GOP filibuster. But in contrast to House budget-writers and education leaders — who agree on using reconciliation to protect student-loan subsidy cuts — senators are divided.

{mosads}“I don’t favor it, because I don’t think that’s what reconciliation was intended for,” Senate Budget Committee Chairman Kent Conrad (D-N.D.) said yesterday. “Why wouldn’t we provide the same treatment to healthcare? Once you go down this road, I think people will live to regret it.”

Sen. Edward Kennedy (D-Mass.), the education committee chairman in charge of shepherding broad higher-education reform to the floor, remains locked in negotiations. Kennedy has not taken reconciliation off the table, but he is unlikely to be a member of the budget conference that must make the official decision.

“Sen. Kennedy will work with leadership and the budget committees to ensure that Congress can deliver a robust college aid package this year,” Kennedy spokeswoman Melissa Wagoner said.

Even as Kennedy and House Education and the Workforce Committee Chairman George Miller (D-Calif.) huddle with budget-writers on reconciliation, the duo is gearing up for a massive investigation of the conflict-of-interest charges plaguing the student-loan industry. The inquiry, jumpstarted by New York Attorney General Andrew Cuomo, has turned up evidence of gifts and special favors sent by lending banks to college financial-aid staffers and Education Department officials.

Miller sent a fresh document request yesterday to Secretary of Education Margaret Spellings, who is slated to appear before his panel next week. The House education chairman, a close ally of Speaker Nancy Pelosi (D-Calif.), remains committed to giving subsidy cuts a leg up in the Senate.

“We believe that the reconciliation process is the appropriate way to ensure that the multi-billion-dollar federal student aid programs are used in the most efficient way possible — to help reduce our deficit and to help students and parents pay for college,” Miller spokeswoman Rachel Racusen said via e-mail. “At a time when college costs continue to soar, and billions of taxpayer dollars are being wasted in excess lender subsidies, this process will allow us to do what’s right for taxpayers, students and families.”

But Kennedy’s committee members were mostly mum on the thorny question of reconciliation, which Republicans used to push through tax cuts in past years, to the consternation of many Democrats.

Sens. Barbara Mikulski (D-Md.), Jeff Bingaman (D-N.M.) and Patty Murray (D-Wash.) have expressed commitment to
reforming the subsidy system, which guarantees lenders 99 percent of loan value plus interest if students default.

Yet few would discuss the steep challenge of paring down subsidies to yield lower costs for students without the protection of reconciliation. Sen. Bernie Sanders (I-Vt.) said he was “cautiously optimistic” that the education committee could secure 60 votes if need be, and Sen. Jack Reed (D-R.I.) echoed Conrad’s position.

“I’d hope we could do this through regular order,” Reed said. He emphasized the need to divert any profits from subsidy cuts toward lowering students’ college bills, adding that any member who seeks to use reconciliation as a tool “had better be poised to point to how it would have a positive effect on the bottom line of the government.”

The White House’s 2008 budget pleasantly surprised some advocates of subsidy reform by proposing $12.4 billion in cuts over five years to the lending industry. Kennedy is floating a draft proposal to cut $22 billion over five years. Already spooked by those jumping-off points for talks, lenders are banking on GOP opposition to steeper cuts to stave off a body blow to their businesses.

Sen. Lamar Alexander (R-Tenn.), a former Education secretary and senior education committee member, said there is a bright line between the misconduct flap and the subsidies themselves.

“The conflicts of interest are of real concern to me. There was some inappropriate conduct and that needs to be cleaned up,” Alexander said, citing bipartisan support for a code of conduct that lenders would follow in the future.

Alexander added that subsidy cuts may be necessary, but he described a steep slice in the private federal loan program as unfairly advantageous to the government’s direct-loan system. Such a privilege would raise alarms among small-government conservatives.

Reconciliation “isn’t really an appropriate way to deal with this,” Alexander said. Referring to his colleagues on the education committee, he said, “We try to work across party lines together, not stuff them through some reconciliation procedure.”

Sen. Tom Harkin (D-Iowa), also on Kennedy’s panel, believes that the lending scandal gives reform proposals more momentum and wants to exceed the president’s cuts, spokeswoman Jennifer Mullin said. He did not address the likelihood of reconciliation this year.

Meanwhile, student advocacy groups are shying away from an explicit recommendation on reconciliation protections while pushing the strongest reform possible.

Reconciliation “is certainly one option available,” said Luke Swarthout, higher education advocate at U.S. PIRG. “It remains to be seen whether they choose to use that. The thing most concerning to the outside isn’t procedure but how we use resources to help students who need help.”