Debate: Fix the Student Loan System? We Agree

(March 12) -- From the beginning of the debate on comprehensive student loan reform, Sallie Mae's position has been clear: We support it.

We stand with the president in his effort to restructure the federal student loan program by leveraging low-cost U.S. Treasury funds to produce taxpayer savings and end the old system of subsidies to student loan companies. End lender subsidies? We agree. Leverage low-cost federal funding to generate savings? We agree. Increase financial aid to students? We agree.

So we're perplexed by the recent misinformation campaign that accused us of standing in the way of reform.

While supporters of the House bill have mischaracterized our position and used straw men to defend their preferred approach -- which, incidentally, has faced substantial opposition from Democrats in the Senate -- the student loan industry has supported an alternative, consensus legislation, in the spirit of President Barack Obama's recent call for bipartisan collaboration.

With a few smart enhancements to the president's reform plan, competition and choice can be maintained to increase accountability to students, colleges and taxpayers, and superior financial literacy and default-prevention services can continue to help students successfully manage their loans. According to the nonpartisan Congressional Budget Office, this approach would save $83 billion that the president can use for Pell Grant increases, community college funding, deficit reduction and other education priorities.

Sallie Mae knows how to help customers through economic bumps in the road. When we make contact with customers, we successfully keep them out of default more than 90 percent of the time. The risk-sharing provision we support would produce lower defaults by encouraging servicers to exceed the law's prescribed collection steps and counsel customers on how to better manage their loans.

This extra effort would save tens of thousands of borrowers from the devastating and lasting consequences of default and billions of taxpayer dollars. With the Department of Education forecast that more than $1.5 trillion in new student loans will be made in the next 10 years, a lower default rate from strong competition and risk-sharing would save tens of billions of taxpayer dollars.

Without the inclusion of this innovative arrangement, we fear that the same problems that led to the mortgage crisis could be repeated in the student loan program, leading to overborrowing and catastrophic levels of loan defaults.

Unfortunately there has been no opportunity to debate the various reform options or evaluate our proposed enhancements on their merits. Congress has held only one hearing on reform and considered only the government takeover proposal. We would welcome the opportunity to present the benefits of the reform we support.

The Center for American Progress has inappropriately scoffed at the real-life, family-supporting jobs that would be lost if the existing reform legislation is passed. Sallie Mae has across the nation 8,500 employees who provide students and families with the resources they need to pursue a higher education. Unless modified, this legislation would eliminate 2,500 of them. If one job lost is one too many, why wouldn't we explore alternative reform options that deliver similar taxpayer savings that can be reinvested in financial aid?

The president has recently renewed the desire to explore bipartisan solutions. To pass his student loan proposal, however, the Senate would have to rely on the hyperpartisan "budget reconciliation" procedure, which has been criticized even by prominent Democrats like Budget Committee Chairman Kent Conrad. Yet, the enhancements we and others support achieve the desired savings (even before the $10 billion in additional savings from lower defaults) and could be passed with broad bipartisan support immediately.

We are willing and waiting to support the best program for students, schools and taxpayers. This is something we should all get behind and call on Congress to act immediately.

John F. Remondi is vice chairman and chief financial officer of Sallie Mae.


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