January 11, 2006
Sallie Mae's Sweet Romance with Rep. John Boehner

By Froma Harrop

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 reform.

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.)

"In American 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 rates.

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.

Copyright 2005 Creators Syndicate

Froma Harrop

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