Sallie Mae's Plan of Attack

Shortly after the Democrats won control of Congress last November, the student loan giant Sallie Mae laid out a strategy for itself -- and a blueprint for the rest of the loan industry to follow -- to protect the cushy subsidies lenders receive for making government-backed loans to students.

This plan, which was obtained by Rep. George Miller (D-CA) and can be read here, provides a close-up look at the hardball tactics that Sallie Mae set out to employ to maintain its dominance over the Federal Family Education Loan (FFEL) program and to beat back attacks from Democrats.

The loan company's political strategy had three main goals:

• To woo Democrats to the cause. For years, Sallie Mae had tilted its political contributions and lobbying efforts to keeping the Republicans in charge of the White House and Congress. With the Democratic victories in November, the company saw an immediate need to reverse course. It set out to hire Democratic lobbyists and to shower Democrats with campaign contributions -- particularly "Blue Dog and Financial Services Democrats" and members of the Congressional Black and Hispanic Caucuses.
  
  
• To manufacture grassroots opposition. to any potential subsidy cuts or efforts to reform the FFEL program. This plan called for mobilizing financial aid administrators at colleges in which Sallie Mae is the predominant lender, as well as other "industry allies," such as the National Assocation of Student Financial Aid Administrators. In addition, a key part of the plan involved persuading historically black colleges that subsidy cuts would especially harm students at their institutions.
  
• To keep Republicans in the fold. Sallie Mae hoped to "arm Congressional Republicans" and the Bush Administration "to combat irresponsible proposals." The company was so sure of its standing with the Republican Congressional leadership that it planned to ask "Leader Boehner" -- Rep. John A. Boehner (R-OH), the House Minority Leader -- and "Chairman McKeon" -- Rep. Howard P. (Buck) McKeon (R-CA), the ranking minority member on the House Education and Labor Committee -- to lean on the White House Office of Management and Budget to stress "the importance of the right budget language."

In some respects, Sallie Mae's plan -- at least to this point -- has failed spectacularly. Whether or not Representatives Boehner and McKeon came to the company's assistance (spokesmen for the lawmakers say they were never contacted), the White House certainly didn't include "the right budget language" in the President's 2008 budget request. In fact, the Bush Administration triangulated the loan industry, proposing deeper cuts in lender subsidies than any Democrat up to that point had proposed.

But in recent weeks, the education committees in the House and the Senate, with surprising amounts of bipartisan support, have approved bills that would take tens of billions of dollars out of the pockets of student loan providers. In addition, both panels are weighing plans to create pilot programs that would use auction mechanisms to set lender subsidies -- a proposal that Sallie Mae and other loan providers hate.

Congress is also expected to soon take up proposals to regulate private student loans. Among other things, Senate Democrats are considering removing a provision from the 2005 Bankruptcy Bill -- which Sallie Mae had championed -- that essentially bars students from being able to discharge their private loans in bankruptcy. Sallie Mae officials are now saying that they are open to revisiting the provision. It's hard to believe them though since they included the restriction as one of their top objectives in the strategy document.

Still, it's too early to count Sallie Mae out. In fact, the company has achieved some of its aims. The company, for instance, has hired some influential Democratic lobbyists, such as John Breaux, the former Louisiana senator who counts Sallie Mae as a client at his lobbying firm Patton Boggs, and Mark Schuermann, who was an aide to the former Rep. Harold Ford Jr. of Tennessee. And several blue dog Democrats in the Senate -- Ben Nelson of Nebraska, Tim Johnson of South Dakota, and Jim Webb of Virginia -- have spoken out against efforts to slash lender subsidies.

In addition, the company appears to have made some headway in its efforts to scare HBCUs and their supporters about how subsidy cuts will affect their institutions. This spring, Rep. Lincoln Davis (D-TN), Sen. Mary Landrieu (D-LA), and Marvalene Hughes, president of the historically black Dillard University in New Orleans, wrote letters to Congress that parroted Sallie Mae's arguments.

In its strategy document, Sallie Mae is very clear on how it planned to manipulate groups representing historically-black colleges and hispanic-servicing institutions to weigh into Congress in its favor. The company lists as one of its first priorities to schedule a meeting between it's then chief executive officer, Tim Fitzpatrick, and Michael Lomax, the CEO of the United Negro College Fund. The purpose of the meeting, according to the document, was "to orchestrate communication from Michael Lomax to FFEL HBCUs, urging communication to leaders in Washington (assuming he would be willing to do this)."

While we don't know what happened at that meeting, we do know that UNCF was one of several black-college groups that wrote to the chairmen of the House and Senate education committees protesting legislation approved by the House that is designed to crack down on abuses in the student-loan industry.

We also know that Sallie Mae has targeted the Congressional black and Hispanic caucuses, sending a document written by Mr. Schuermann, which claims that cuts in loan subsidies would be an alarming threat to HBCUs and Hispanic-serving institutions, which could threaten service to African-American and Latino families. The implication is clear if the CBC and CHC failed to go along with what Sallie Mae wanted, it would have no compunction letting their member colleges know that they had put black and Hispanic students and families in harm's way.

Meanwhile, Sallie Mae is not alone in its lobbying efforts. In recent weeks, loan industry groups like the Consumer Bankers Association (CBA) have borrowed from the company's playbook by trying to "manufacture" grass roots dissent. Recently CBA was caught trying to spread misinformation to labor union members to get them to join a campaign opposing legislation that would cut lender subsidies. They have also produced a push poll of financial-aid administrators aimed at persuading lawmakers that college officials do not believe student-loan providers, as a group, are unethical.

The next several weeks are going to be crucial to the cause of student-loan reform. Sallie Mae's strategy document makes clear the lengths the company and its allies will go to block such efforts. While the company's plan has not worked as well as planned so far, it's up to advocates of reform to expose these tactics for what they are.