As if earning interest as high as 20 percent on college loans isn't enough, the lending industry is now engaged in a frantic campaign to preserve the spoils of its ill-gotten gains—and they're even asking for labor's help to do it.

"It has come to my attention," writes AFL-CIO secretary-treasurer Richard Trumka in a letter to all affiliates, "that many affiliates have been approached by the Consumer Bankers Association (CBA), Nelnet and other organizations associated with the lending community and asked to send letters to Congress regarding potential changes to the federal student loan programs.

"Specifically, we know CBA has asked some AFL-CIO affiliates to send letters urging Congress to oppose changes to the federal student loan programs, under the disingenuous theory that such changes would limit the education-funding choices available to students and their families. Contrary to these assertions, the changes under consideration in Congress would have virtually no [negative] impact on loan access or affordability," writes Trumka. The changes would reduce interest rates and fees and shift money into Pells.

The union acquired copies of faxes sent to the AFT and other labor affiliates across the country at the beginning of April, as Congress was considering ways to shift student loan program dollars in order to make more aid available to students. The faxes were hand-written on Nelnet (National Education Loan Network) and CBA cover sheets, but had identical language. They told recipients that Congress was considering limiting families' borrowing options, thereby reducing college access.

As AFT legislation director Tor Cowan wrote in the AFT's own letter to affiliates: "These letters are misleading. They are asking unions to lobby Congress to take a position that is NOT in the best interest of union families."

Lenders like the two biggest ones—Sallie Mae and Nelnet—are upset that Congress is moving to take back some of the incentives it has provided over the years to ensure that banks would make loans to students. Having the loans guaranteed against default by taxpayer dollars wasn't enough to get banks into the program at the outset, so Congress awarded favorable interest rates and fees to the banks. Now, the business has become so lucrative, says the online site Higher Ed Watch, that the average profit lenders earn on student loans is 43 percent. Higher Ed Watch has reported extensively on the student loan program scandals of recent months.

Last fall, for example, the practices of Nelnet were in the headlines. Nelnet figured out a way to bilk taxpayers out of hundreds of millions of dollars for two-and-a-half years, according to the U.S. Education Department Office of Inspector General. But instead of making the company pay back $278 million it had overcharged, the department negotiated a "deal" whereby Nelnet just had to agree to forego $882 million in improper future subsidies.

This sweet deal may not have sat well with N.Y. Attorney General Andrew Cuomo, who began an investigation of the industry. He zeroed in on perks lenders provided university financial aid offices in exchange for topping the list of "preferred lenders" recommended to families.

Now, the climate that protected the lending agencies has changed (as has the makeup of Congress). As Congress turns to reauthorizing the Higher Education Act and especially the multibillion dollar student aid programs, it has looked to shift resources from lenders to students. The College Cost Reduction Act of 2007, which passed the House Education and Labor Committee on June 13, reduces excessive federal subsidies paid to lenders in the college loan industry by $19 billion.

"The changes would provide sufficient funds to keep the direct loan program running effectively, while limiting the profits banks make on student loans," Trumka writes in his letter to affiliates. "The direct loan program costs less to run than the guaranteed bank loan program. Consequently, the direct loan program will help free up additional funding that Congress could place in needs-based aid that provides the most help to working families and students."

"It is time we put the emphasis back on helping students attend college, not on subsidizing private banks," says AFT president Edward J. McElroy. [Barbara McKenna]

June 18, 2007