Student Loan Debate, Redux, as Donor Schools Weigh In

A feeling of déjà vu permeates the current student loan debate. Just last June, President Barack Obama and Congress agreed on holding the interest rate for unsubsidized Stafford loans at 3.4 percent. But that agreement expires on July 1. If Congress does not pass negotiate another deal, unsubsidized Stafford loan interest those rates will double — meaning more than 7 million students will need to pay $ 1,000 more per loan per year, according to the White House.

Opensecrets.org data shows that the education industry has invested heavily in members of the House and Senate who currently are working on bills to address the issue. 

Rep. John Kline‘s proposal, H.R. 1911: Smarter Solutions for Students Act, gained House approval with a vote of 221-198 on May 23. The bill aims to peg subsidized and unsubsidized Stafford loan rates to the rates of 10-year Treasury notes plus 2.5 percent — with a cap of 8.5 percent for undergraduate loans. This year, the interest rate would be 4.4 percent according to the Washington Post, but it would increase in subsequent years. 

As the House Education in the Workforce Committee chairman, Kline — a Minnesota Republican — has contributors in both the nonprofit and for-profit education realms. For the 2011-2012 election, education was his top industry donor, with individuals donating a little less than $ 200,000 and education PACs donating more than $ 70,000. His top contributor for 2011-2012 was the Apollo Group, a corporation that owns for-profit schools, including the University of Phoenix. In 2011-2012, he was the second top recipient of contributions from the for-profit education industry, receiving more than $ 193,000, and the 10th top recipient of funds from the education industry overall at $ 268,000.

Senate Democrats largely oppose the Smarter Solutions for Students Act and have come up with a couple of their own proposals. S. 909: Responsible Student Loan Solutions Act sponsored by Sens. Jack Reed (D-R.I.) and Dick Durbin (D-Ill.), would connect the interest rate on Stafford loans to the rate on a 91-day Treasury bill, plus an additional percentage for loan administration costs. The education industry donated more than $ 66,000 to Reed in the 2012 campaign cycle, and more than $ 185,000 to Durbin. A companion bill was introduced in the House by Rep. John Tierney (D-MA) and Rep. Joe Courtney (D-CT). The education industry donated less than $ 30,000 to Tierney’s campaign and less than $ 18,000 to Courtney’s campaign.

Reed is also sponsoring S.953, the Student Loan Affordability Act, with Sen. Tom Harkin (D-Iowa), chairman of the Committee on Health, Education, Labor and Pensions. The bill extends the current 3.4 percent rate for subsidized Stafford loans for another two years in order to buy time to devise a long-term solution. Harkin garnered more than $ 146,000 from the education industry during the 2012 cycle.

Sen. Elizabeth Warren (D-Mass.) introduced the S. 897: Bank on Student Loan Fairness Act in early May, with a companion bill introduced the following week in the House by Tierney. The bill, which will enable the Federal Reserve to fund student loans at the same, 0.75 percent rate charged for banks, has found many backers in the education industry. Warren pulled in more than $ 1.2 million from education in her 2012 race — the most expensive in the nation, with more than $ 77 million spent by the two candidates alone. That placed her third among all education industry recipients in 2012. Her top contributors included five universities, with Harvard University ranked third, Massachusetts Institute for Technology ranked fourth, Boston University ranked sixth, University of California ranked seventh, and Brandeis University ranked 16th. Since the bill’s inception, 19 colleges, including Brandeis and MIT, and 14 organizations have supported the bill. These organizations include the American Federation of Teachers, which donated more than $ 15,000 to Warren in 2012.

Sen. Kirsten Gillibrand (D-N.Y.) also announced the Federal Student Loan Refinancing Act in May, which gives students and graduates the ability to refinance their federal loans at a fixed rate of 4 percent if their rates are currently higher than that. The education industry donated a little less than $ 300,000 to Gillibrand in 2012; she was the 19th top education industry recipient that year.

Obama plans to veto Kline’s bill if it reaches his desk, yet seeks a different solution from those created by Democratic senators. His plan is to link rates to the Treasury’s borrowing costs, but fix the rates rather than reset them yearly. In addition, Obama’s plan would cap student borrowing costs so they would not exceed 10 percent of the student’s income.  

Obama was the favorite of the education industry overall in the 2012 campaign cycle, receiving more than $ 21 million. He ranked third with for-profit institutions, which gave him more than $ 79,000 for his last election. His top contributors included six schools within the University of California system, which donated more than $ 1.2 million; Harvard University, donating more than $ 668,000; Stanford University, which gave more than $ 512,000; Columbia University, contributing more than $ 455,000; the University of Chicago, with more than $ 357,000 donated, and the University of Michigan, which provide Obama with more than  $ 339,000.

While Obama is advocating for his student loan overhaul to pass, the government is positioned to profit the most if none of these bills are passed and unsubsidized Stafford student loan interest rates double on July 1. In May, the Congressional Budget Office upped its February estimate of what the Department of Education would earn from student loans in 2013 from $ 35.5 billion to $ 50.6 billion. As reported by the Washington Post, Obama’s plan would cost $ 33.4 billion during the next five years, but during the next ten years it would save the government $ 3.1 billion.

As July approaches, those in the education industry will discover whether their investments will yield them much sway over the future of student loan policy.

OpenSecrets Blog

Student Loan Debate, Redux, as Donor Schools Weigh In