Sallie Mae Drafts Big Names in Fight

When President Barack Obama announced last year a plan to have the federal government assume direct control of all student loans, Sallie Mae, the large student lender, moved quickly to step up its lobbying game.

Fearful that the administration's plans could dramatically reduce its operations, the company sought some well-connected help, including the lobbying firm Podesta Group, and Jamie Gorelick, a partner at Wilmer, Cutler Pickering Hale and Dorr — and a deputy attorney general during the Clinton years.

Since last March, Democratic insider Tony Podesta and a bipartisan team from his firm — including Lauren Maddox, who was assistant secretary for communications in President George W. Bush's Education Department, and Paul Brathwaite, former executive director of the Congressional Black Caucus — have been lobbying lawmakers and mobilizing support among Sallie Mae employees who fear losing their jobs.

They have been trying to persuade Congress to approve a compromise measure that would allow Sallie Mae to compete to administer the lucrative student loan business. Under Sallie's plan, the government would own the student loans.

Administration officials have criticized the lobbying effort, with one official noting that Podesta was running a "war room" to kill the White House plan.

Podesta dismissed such a characterization, joking that "it is a peace room."

"We're not declaring war. We're saying, ‘let's work this out,'" he said, adding that at a time when Congress was considering approving a jobs bill, Members should not be passing a "layoff bill."

The lobbyist admitted that Sallie Mae faces a "challenging situation" in making its case on Capitol Hill and at 1600 Pennsylvania Ave.

The White House has been vigorously pressing lawmakers to complete work on legislation approved last fall by the House that would eliminate the private Federal Family Education Loan Program, a move officials argue would save taxpayers billions of dollars that could be plowed into Pell Grants and other education programs.

Education Secretary Arne Duncan recently escalated his attack on private lenders, especially singling out Sallie Mae by painting the lender as a bunch of well-paid bankers benefiting from government subsidies.

"Sallie Mae executives have paid themselves hundreds of millions of dollars in the last decade while teachers, nurses, and scientists — the backbone of the new economy — face crushing debt because of runaway college tuition," Duncan said in a statement. He accused the company of running advertising against the administration's proposals in a number of states "and lobbying Congress to protect this scheme — all on the taxpayer's dime."

Sallie Mae spent $3.4 million on federal lobbying last year, a figure that includes $290,000 for the Podesta Group and $350,000 for Gorelick's law firm, according to lobbying records filed with Congress.

Conwey Casillas, vice president for public affairs at Sallie Mae, said the company beefed up its lobbying effort to grab the attention of lawmakers who have been preoccupied with health care reform.

"In such a highly charged political environment where health care is sucking the air out of everything, we need to more effectively get through the message that we are not fighting" student loan reform, he said.

He said the major difference between the two plans is that under the proposal supported by Sallie Mae, private companies would be able to bid on processing the loans. Currently, Accenture has the sole contract to administer direct government loans.

"The bottom line is we support the government owning all loans," Casillas said. "We think there should be a competitive environment in delivering those loans."

Contrary to the Obama administration's rhetoric, Casillas said Sallie Mae is not seeking subsidies, just fees to administer the program.

He also said both plans would reap substantial savings and cited a Congressional Budget Office study prepared for Sen. Bob Casey (D-Pa.) that showed the Sallie Mae-backed plan would save $82.5 billion compared with $87 billion in savings estimated for the White House plan.

Administration officials argue they would still have to pay private companies billions of dollars in fees to administer the loans, which they say is not that much different than the subsidies they now receive. The government currently guarantees the private loans and has bought back loans of firms in trouble.

Education department officials also say suspect private lenders would view a contract to administer the loans as a marketing opportunity to sell other products, like credit cards and additional loans, to students. They say Sallie Mae's proposal could lead to abuses, such as financial aid officers accepting gifts and assistance in exchange for choosing a certain company.

To reach lawmakers, Sallie Mae is running radio ads in Pennsylvania and Indiana, states where it has major operations and that are represented by moderate Democratic Senators. Casillas said it has not been determined whether the company will run additional ads.

Sallie Mae, which is headquartered in Reston, Va., has 8,500 employees. Company officials estimate that if the House legislation is signed into law, Sallie Mae will cut a third of its workforce.

Currently, the legislation is stuck in the Senate. Democratic leaders acknowledge they do not have the 60 votes necessary to override an anticipated filibuster and are therefore considering tucking the student loan provisions into a broader budget reconciliation bill. Reconciliation measures only require a simple majority vote to pass the Senate.

The reconciliation measure has not moved because lawmakers still are not in agreement over whether to include health care reforms on the budget package. Health care reform has been stalled ever since Democrats lost their 60-vote supermajority in the Senate with the election of Republican Sen. Scott Brown in Massachusetts.

A Senate Democratic staffer said health care reform was continuing to delay the student loan bill.

Democrats are unlikely to garner 60 votes for the student loan bill in part because of opposition from some moderate Democrats, such as Sen. Ben Nelson of Nebraska, whose states are home to student loan providers.

Nelnet, a student loan company based in Lincoln, Neb., last year spent $580,00 on lobbying. It hired Avenue Solutions, whose lobbyists include Amy Tejral, a former Nelson aide. Last year Nelson opposed the budget resolution, citing the proposed changes to the student loan program.

Gorelick, however, said the compromise being promoted by Sallie Mae should attract moderates because it provides for competition among private companies for the processing of the loans. Gorelick, who has been involved in drafting the legislation and talking to administration officials, said she has been puzzled by the characterization of Sallie Mae's proposal.

She said the plan "represents centrist Democratic values."

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