January 11, 2006
Sallie Mae's Sweet Romance with Rep. John Boehner
Rep. John Boehner,
Republican of Ohio, wants to be House majority leader. The job
is open with the departure of Tom DeLay, the Texas Republican
now sinking into the Abramoff scandal, and amid calls for campaign-finance
Let's talk about
Boehner and the financing of campaigns -- specifically, his. Boehner
raised $172,000 from student-loan companies during 2003 and 2004.
What made him worthy of that healthy sum?
The answer can be
found -- but not easily -- in the budget reconciliation bill now
awaiting final approval from Congress.
Chairman of the Education
and Workforce Committee, Boehner had orders to find $13 billion
in cuts from the student-loan program. The bankers were initially
worried, but Boehner reassured them. "Know that I have all
of you in my trusted hands," he told the annual meeting of
the Consumer Bankers Association, adding, "I've got enough
rabbits up my sleeve."
The federal student-loan
program has been an open-pit goldmine for banks. The taxpayers
guarantee the companies against both deadbeat borrowers and risks
posed by rising interest rates. Uncle Sugar even offers a free
hedge against changes in interest-rate spreads that could harm
the lenders' bottom line. (Other businesses must go to Wall Street
and pay for such services.)
history, this is the most outrageous giveaway ever extended by
the federal government to private lenders," says Barmak Nassirian,
associate executive director of the American Association of Collegiate
Registrars and Admissions Officers.
The king of the student-loan
business is Sallie Mae. Once a quasi-government agency, Sallie
Mae is now an independent, publicly traded company -- SLM Corp.
The company's stock price has risen 1,900 percent over the last
10 years. And from 1995 to 2004, former CEO Al Lord raked in $225
million. Lord now leads an investors group trying to buy the Washington
Nationals baseball team.
Who would have thought
there was that kind of money in a government program designed
to help working-class kids pay for college and trade school?
Boehner and friends
could have saved billions by just taking some honey out of the
lenders' subsidies. They did eliminate a "floor" on
the guaranteed interest rates -- and put on a big show about how
they were taking money out of the banks' hides. But actually,
they more than made up for that setback with fine-print changes
that will let lenders rake in more money than ever.
For example, Boehner's
legislation gives banks the power to stop certain borrowers from
leaving their clutches and entering a federal program for people
who can't earn enough money to pay off their loans. (They make
money whether their captives pay or default.)
The Clinton administration
started a program that provides loans directly to students, cutting
out the private lenders. The Direct Student Loan Program is also
cheaper for taxpayers. Boehner has written into the bill a subtle
plan to kill it off: Move the administrative account for student
loans out of the entitlement category and into a discretionary
budget. That makes it easier for Congress to chop funding for
the account. When that happens, the private lenders win in two
ways: There's less money to oversee their activities, and the
direct-lending program that competes with them is undermined.
As we can see, license
to abuse student borrowers is as important to building the banks'
fortunes as outright taxpayer subsidies. In a hard look at Sallie
Mae, Fortune magazine reported on a $38,000 student loan that
ballooned to $100,000 after the borrower had been out of work
for a while. It found that the annual cost of credit for another
person still in school was an astounding 28 percent. That happened
after Sallie Mae tacked its exorbitant fees onto its predatory
The Fortune piece
questioned what might happen to Sallie Mae's stock price if taxpayers
and students got wise to the game. Boehner makes sure they don't,
by writing complex laws that only insiders can understand.
It should surprise
no one that Sallie Mae is Boehner's most generous benefactor.
Boehner is now on
the Fox News Channel insisting that the campaign-finance laws
don't need to be changed, just better enforced. And his prospects
for becoming House majority leader? That would depend on how self-destructive
Republicans are feeling at the moment.
2005 Creators Syndicate