A shrunken student-loan industry, faced with the legislative fight of its life, has spent millions of dollars on lobbying and campaign contributions over the last year and a half, even as subsidy cuts and a continuing credit crunch have squeezed its margins and driven dozens of banks from federal student lending.
Between January 1, 2008, and the end of June 2009, the top 20 participants in the federal bank-based loan program spent nearly $14-million lobbying the federal government, some $3.1-million of it in the first half of this year alone, according to a Chronicle analysis of federal records available through the Center for Responsive Politics. At the same time, they’ve showered members of the Congressional education committees with close to $600,000 in donations. The lenders’ chief goal: to persuade Congress to reject President Obama’s plan to end bank-based student lending.
Lately, lenders haven’t seen much of a return on their investment. In September, the U.S. House of Representatives passed a bill that would shift all lending into the government’s direct-loan program; the Senate is expected to introduce a similar measure soon. Some lenders and Congressional aides see the legislation as a sign that the loan industry’s storied clout is waning, or was exaggerated to begin with.
Still, lenders have won some small victories along the way. In July a group of 31 moderate Democrats sent a letter to the chairman of the House education committee, Rep. George Miller, Democrat of California, warning that Mr. Obama’s plan to end the bank-based, guaranteed-loan program would cost jobs in their home states. Less than two weeks later, Mr. Miller introduced a bill that adopted the president’s approach but set aside a portion of the government’s loan-servicing contracts for state-based nonprofit lenders.
The bill also offered a minor concession to commercial lenders: a change in the subsidy rate on outstanding student loans that would make them more profitable.
Now, with the Senate poised to offer its bill as early as this week, lenders are turning their attention to a handful of moderate Democrats from states where lenders are large employers. The president himself is urging lawmakers to resist their appeals.
Speaking at Hudson Valley Community College in September, Mr. Obama called efforts to end federal student-loan subsidies “a no-brainer for folks everywhere—except some folks in Washington.”
“We’re already seeing special interests rallying to save this giveaway,” he said. “That’s exactly the kind of special-interest effort that has succeeded before, and we can’t allow it to succeed this time.”
Sallie Mae Leads the Way
Leading the lobbying effort is the giant of the student-loan industry, Sallie Mae, which according to the Education Department originated $14.3-billion in federal student loans in 2008, roughly a quarter of the program’s total volume for that year.
The lender, which spearheaded the industry’s efforts to develop an alternative to Mr. Obama’s plan, has spent $5.8-million lobbying over the last year and a half, $2.5-million of it in this year alone, according to the Chronicle analysis. While much of that money—some $1.8-million—went to the lender’s in-house lobbyists, Sallie Mae spent $682,500 assembling an army of outside lobbyists with ties to the administration and Capitol Hill.
One of its key consultants was Jamie S. Gorelick, a former deputy attorney general in the Clinton administration who is now a partner in the Washington law firm of Wilmer, Cutler, Pickering, Hale and Dorr LLP. Sallie Mae paid the firm $270,000 in the first half of 2009.
Another $110,000 went to the Podesta Group, a lobbying shop founded by Tony Podesta, a top Democratic fund raiser whose brother was President Bill Clinton’s chief of staff and led President Obama’s transition team.
Martha E.H. Holler, a spokeswoman for Sallie Mae, declined to comment on the lender’s lobbying strategy but said its goal was to ensure that members of Congress understood the importance of preserving competition and borrower choice in student lending.
“That’s what we’re seeking to do,” she said. “It’s not a partisan issue, so we’re telling that story to as many members of Congress as we can.”
Sallie Mae’s lobbying effort dwarfs that of the second-biggest spender on student-loan lobbying this year, Nelnet, which spent $1-million over the last year and a half, including $360,000 during the first half of 2009.
Most of the other lenders on the top-20 list averaged about $20,000 for that period. It’s impossible to compare banks’ spending on federal lobbying on student-loan matters five years ago with today’s because banks lobby on a variety of issues. Lobbyists began reporting the specific topics on which they lobby only last year, when new disclosure rules went into effect.
Industry insiders say Sallie Mae’s spending shouldn’t come as a surprise. As the nation’s largest lender, it has the most to spend—and the most to lose if the president’s plan is approved. Albert L. Lord, Sallie Mae’s chief executive, has estimated that his company will have to cut is work force by 25 percent, or 2,000 employees, if Congress ends bank-based lending.
Meanwhile, some small nonprofit lenders have outspent the big banks on lobbying. ALL Student Loan, which made only $326-million in student loans in 2008, spent $95,000 in the first half of this year advocating for nonprofit lenders. Among the lender’s lobbyists was Michael A. Forscey, a former top aide to Sen. Edward M. Kennedy, chairman of the Senate education committee until his recent death, and Vincent P. Reusing, a personal friend of Representative Miller’s. South Carolina Student Loan, another nonprofit lender, paid Mr. Reusing’s company $5,000, and KnowledgeWorks Foundation, an Ohio-based nonprofit lender, recently retained its services, too.
Rachel Racusen, a spokeswoman for Mr. Miller, said the chairman’s decision to set aside a percentage of servicing contracts for nonprofit lenders was unrelated to his friendship with Mr. Reusing.
“Many members of our committee saw the value of including nonprofit lenders in the program because of their longstanding relationships with students and schools in their states, their proven track record in providing high-quality services to students and schools, and to help maintain jobs in their local communities,” she said.
Of course, lenders don’t limit their lobbying to members of Congress; they also hire lobbyists to press the administration and agency officials for grants and contracts. While it’s impossible to draw a direct line between lobbying and agency decision making, the Education Department recently awarded student-loan servicing contracts worth at least $5-million each to four companies that had lobbied the federal government: Sallie Mae, Nelnet, the Pennsylvania Higher Education Assistance Agency, and Great Lakes Educational Loan Services Inc. The Pennsylvania agency has spent $200,000 on lobbying this year, and Great Lakes has spent $60,000. Only companies that had serviced at least two million loans in the past were eligible to apply for a contract.
Wooing Moderate Democrats
But lobbying is only one tool for influencing federal policy making; campaign contributions are another. During 2008 and the first half of 2009, employees and political-action committees of the nation’s top 20 lenders gave $592,643 to members of the House and Senate education committees, with 62 percent of the money going to Republicans, according to the Chronicle analysis.
As with lobbying expenditures, Sallie Mae was the top spender, donating $102,000 to members of the two committees, the majority of it (65 percent) to House Republicans. The education committees are responsible for writing legislation to remake the student-loan system.
But Sallie Mae, like other top lenders, gave far less in 2008 and the first six months of 2009 than it gave five years ago. In 2003 and the first half of 2004, the last period for which The Chronicle analyzed lenders’ campaign contributions, Sallie Mae lavished $184,220 on members of the House education committee alone. Over all, donations by the student-loan industry to House committee members have plummeted by more than 44 percent over the past five years, falling from $632,000 to $356,560.
Much of that drop can be attributed to a shrinking of the student-loan industry, lenders and Congressional aides say. Nearly 200 companies have scaled back their lending or left bank-based lending altogether since 2007, amid subsidy cuts and a credit crunch that has made it harder for lenders to obtain financing for their loans.
Many of the lenders that remain in the program have laid off staff members, resulting in reductions in employee giving to lenders’ political-action committees. Both Sallie Mae and Nelnet have seen donations to their political-action committees drop since 2006, when such giving peaked.
“We’ve taken all the money out of the industry and the recession did the rest,” said one Republican Senate aide who spoke on condition of anonymity. “There’s nothing left to give.”
Cash-strapped lenders may also be focusing their limited resources on lobbying, which is a more direct way of shaping individual bills, campaign-finance experts say."If you have repeated conversations with lawmakers, it’s often more effective than simply cutting a check,” said Dave Levinthal, a spokesman for the Center for Responsive Politics.
Changes in the makeup of the education committee may also explain the decrease. While donors sometimes give in the hopes of swaying wavering lawmakers, they more often donate to members who already agree with them, as an incentive and reward for good behavior, says Thomas R. Wolanin, a longtime Democrat Congressional aide who is now retired.
“Money goes to people who agree with you, rather than money causes people to agree with you,” he says.
Given that tendency, it’s hardly surprising that lenders have given more to education-committee Republicans who support bank-based lending than to education-committee Democrats, a majority of whom back the president’s plan.
In fact, all of the top five recipients on the House education committee are Republicans (though four of those are also on the Financial Services Committee, which may account for some donations from banks). Even Mr. Miller, the House committee chairman, got only $16,000 from the top lenders, $40,000 less than Rep. Howard P. (Buck) McKeon, who was the panel’s top Republican until June.
Compare that with five years ago, when Rep. John A. Boehner, an Ohio Republican who was then chairman of the education committee, raked in $136,270, and Mr. McKeon, who was then chairman of the higher-education subcommittee, got $174,950.
“A lender giving to George Miller would be like a chicken donating to Colonel Sanders,” one loan-industry lobbyist quipped.
Representative Boehner, who is now the Republican leader in the House, remains popular with lenders, drawing $149,200 in campaign contributions over the last year and a half.
Instead, some lenders have focused their giving on moderate Democrats, who tend to be more skeptical of the president’s plan. Sallie Mae, in particular, has employed a strategy of going after centrist Democrats who are part of the Blue Dog Coalition and members of the Congressional Black and Hispanic Caucuses, according to a 2006 memo published by the blog Higher Ed Watch.
Between January 2007 and this March, the lender gave $124,750 to Blue Dog Democrats, according to data compiled by the Center for Responsive Politics. Members of the black and Hispanic caucuses got $76,500 and $19,500, respectively. While Sallie Mae’s giving to members of the education committees split roughly 80-20 for Republicans over the past year and a half, its overall spending has favored Democrats since they regained control of Congress in 2006.
But the real battleground for bank-based lending will be in the Senate, where the fate of Mr. Obama’s proposal could rest with a handful of moderate Democrats. There, too, lenders are plying centrists with campaign cash. Sen. Ben Nelson, a Nebraska Democrat whose state is home to Nelnet, has received close to $50,000 from the lender over the last five years, according to the Center for Responsive Politics, making Nelnet his top campaign contributor.
Among members of the Senate education committee, donations were divided evenly between Democrats and Republicans. But there were some glaring discrepancies. For example, Senator Kennedy, who had a hand in the creation of direct lending and backed Mr. Obama’s plan to end the bank-based program, received only $1,250, while the top Republican on the panel, Sen. Michael B. Enzi of Wyoming, received $10,000.
While lenders will have a more sympathetic ear in the Senate, campaign-finance experts say that the drop in overall giving by the student-loan industry could ultimately dampen the industry’s ability to shape legislation.
“Money is an influencer,” said Mr. Levinthal. “If donations wane, entities do run the risk of being lesser players.”
Libby Nelson contributed to this article.
