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Student Loan Industry Moves to Keep Subsidies

Critics of proposals to cut subsidies to the student loan industry say that they could hurt low-income and black students the most.

That message was crafted by Sallie Mae, the largest of the private lenders that stand to lose billions of dollars if the subsidies are cut.

Taxpayers pay billions of dollars a year to ensure that private lenders make a profit when they loan money to students. But as congressional budget leaders consider cutting the subsidies, they are meeting resistance from educators and industry lobbyists.


The student-loan subsidy system is being challenged as it never has before, in the wake of revelations about fraud and abuse in the student loan industry.

This month, Dillard University's president, Marvalene Hughes, wrote her Louisiana senator to plead with Congress not to cut subsidies to private student lenders.

The private sector, she wrote, has been more "responsive" to Dillard's needs than the government's own direct student-loan program.

Hughes and other Dillard officials declined to talk with NPR for this story, but their message mirrors a set of talking points created by Sallie May lobbyists.

Sallie Mae says that cuts to private student lenders would mean fewer benefits to historically black schools, the ones that need them most.


And, the talking points say, those cuts could mean that fewer black students get loans at all.

Sallie Mae spokesman Tom Joyce told NPR that the risk for lenders is greater at schools with higher default rates. And that could get worse if federal payments to lenders are cut, he said.

"Fewer lenders will be willing to make loans at campuses that have a disproportionate number of low- or middle-class families," Joyce said.

But that statement gets a blunt response from Republican Rep. Tom Petri:

"It's just not true."

Petri, a fiscal conservative who wants to cut the huge taxpayer subsidies to private lenders, says Sallie Mae wants to scare people. Petri said if private lenders refuse to lend money to black students on historically black campuses, that would be an act of racial discrimination under the Higher Education Act.

Petri says the lobbying campaign is just a sign of how high the stakes are for private student lenders.

Using the president's budget figures, Petri estimates that subsidies to private lenders are costing taxpayers $3 billion — money that he says could be going to help more poor students rather than to company profits.

Petri knows that schools such as Dillard get some benefits from Sallie Mae. But he says they come at a huge cost to taxpayers.

Barmak Nassirian, with the American Association of College Registrars and Admissions Officers, says the lobbying campaign targets the majority party in Congress — the Democrats.

"This is an attempt to peel off as many Democrats as possible," Nassirian said, "to throw sand in the machinery."

The lobbying has resonated with two Democrats, at least.

Sen. Mary Landrieu of Louisiana wrote the Senate's majority leader, giving out exactly the message laid out in the Sallie Mae talking points.

Landrieu warned of "a very harmful impact" on students and historically black colleges and universities in Louisiana.

Rep. Lincoln Davis of Tennessee warned of similar harms to lower-income students if private student lenders have to take cuts.

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