Indebted to Lobbyists?

The Role of Campaign Contributions in Federal Student Loan Policy

A college education has never been more crucial for future success. Yet a college education has also never been more expensive. When adjusted for inflation, average tuition and fees at four year public colleges have risen 35 percent since 2001[1] and tuition at private colleges increased 5.9 percent just in the past academic year[2]. The average undergraduate student leaves college with more than $20,000 in debt.[3]

As the cost of tuition and student debt continues to rise, so do the contributions of the student-loan industry to members of Congress. These loan institutions have used their clout to stymie efforts to make student loans more affordable. Even with the new Democratic majority in Congress pledging to reform the student loan system, expect to see the industry flex its muscle. The House passed student loan legislation as part of its first 100 hours agenda, but with contributions from the industry flowing into both Democrats and Republicans, it remains to be seen whether students will receive relief any time soon.

Clean Elections, or publicly financed elections, would change the dynamic of the pay-to-play system. Candidates would no longer need to depend on contributions from the student loan industry-or any other-to run and win competitive campaigns.

Student Loan Industry Contributions Increased

• The student loan industry funnels contributions to lawmakers that are in charge of higher-education policy, with amounts rising dramatically in the last 25 years. While contributions spike every time the Higher Education Act is reauthorized, the contributions that came in during the authorization process in the 2004 cycle were higher than ever.[4]
• According to the nonpartisan Center for Responsive Politics, individuals and PACs associated with Sallie Mae, the country's leading student loan provider, contributed over $500,000 to federal political candidates and parties in the 2006 election cycle. Nelnet, another major student loan provider, contributed $489, 000 to candidates.
• Both Sallie Mae and Nelnet were two of the top contributors to the campaign of Rep. Howard McKeon (R-CA), the chair of the House Committee on Education and the Workforce in the 109th Congress, the committee that handles higher education and student loan issues.[5]

Under 30, But Over $20,000 in Debt

The budget reconciliation bill that was signed by President Bush in February 2006 cut $12 billion from student-loan programs, partly by raising interest rates on these loans.[6] Though student loan companies continue to make record profits (Sallie Mae's stock has climbed 750 percent since 1996 when Congress allowed it to become a publicly traded company[7]) and contributions to political candidates from these companies continue to rise, students and their families are finding it harder to pay for college.

According to a recent survey, 22 percent of college graduates in their twenties have taken jobs they otherwise would not have because they needed more money to pay off student-loan debt. Eleven percent said they were delaying marriage and 14 percent are delaying having children. Moreover, 19 percent of those surveyed moved back home with their parents to cut costs and pay for their debt.[8]

While many young people are barely getting by, the top executives at major student loan companies are reaping the rewards. Sallie Mae CEO Tim Fitzpatrick topped the list of highest-paid executives in the Washington, DC area in 2005 raking in $39.6 million in total compensation.[9] And at Nelnet, proving profit comes before students, top executives Michael Dunlap and Stephen Butterfield will receive $500,000 a piece for every $1 per share the company earns in 2007 above their regular compensation.[10]

Room for Change

The new Democratic majority in the 110th Congress has pledged an overhaul of the student loan program as a top priority. [11] Indeed, as it became clearer that the Democrats were going to gain control late in 2006, Sallie Mae's stock prices fell because investors seem worried that "a Democratic takeover of Congress could tilt the playing field."[12]

On January 18, 2007 the House passed legislation that would halve interest rates on subsidized Stafford loans from 6.8 percent to 3.4 percent over the next five years. This would affect the 5.5 million students who borrow Stafford loans[13] every year. The lower interest rate would save incoming college freshmen thousands of dollars over the course of their college career.[14] This plan is a drastic change from recent efforts to overhaul student loans. Only a little more than a year ago, Rep. John Boehner (R-OH), then Chair of the House Committee on Education and the Workforce, assured a roomful of loan-industry officials by saying, "know that I have all of you in my two trusted hands."[15]

While this movement toward reform of the student loan system is heartening, expect to see maneuvering by the student loan industry to cash in on its clout. Much of the industry's contributions in recent years have gone to Republicans, these companies are likely to start shifting their money to the new majority. For example, Sallie Mae gave 72 percent of their contributions to Republicans in 2004, but in 2006 gave them 58 percent- with the rest going to Democrats.[16]

Clean Elections

Full public financing of elections, or Clean Elections, already law in Maine, Arizona, New Mexico, North Carolina, New Jersey, Vermont, and Connecticut cuts the ties between special interest money and public policy by allowing candidates to run for office without seeking large contributions from an elite and wealthy few. Instead, candidates are asked to demonstrate broad public support by gathering a number of small dollar contributions (usually $5) from voters and agreeing to abide by spending limits and forgo further private contributions. In return they receive a grant from the state to run their campaign, and if they are elected they head to the statehouse accountable primarily to the voters who elected them, not the special interests who would have financed their campaign.

Clean Elections creates greater diversity in the candidate pool, allowing people from a variety of backgrounds, who might not otherwise have had the resources to run, to seek office and pursue policy solutions to the problems facing ordinary Americans.

Student loans are big business and lenders will continue to give money to members of Congress as long as the system allows. Clean Elections would end this pay-to-play system and put American families and students ahead of campaign donors.

[1] Trends in College Pricing 2006, The College Board, October 2006.

[2] Associated Press, What's on the agenda for student aid, November 15, 2006.

[3] Ibid.

[4] Chronicle of Higher Education, Selling Out Higher-Education Policy? July 30, 2004.

[5] Center for Responsive Politics, http://www.opensecrets.org.

[6] Fortune, Back to School, November 27, 2006.

[7] Kiplinger.com, Students' Pain, Sallie's Gain, November 17, 2006.

[8] USA Today, Young People Struggle to Deal with Kiss of Death, November 22, 2006. Data based on survey by USA Today and the National Endowment for Financial Education of "twentysomethings."

[9] Washington Post, 2005 Compensation for Top-Earning Executives Grew with Stock Option Awards, July 10, 2006.

[10] Lincoln Journal-Star, Nelnet Execs in Line for Bigger Bonuses, November 26, 2006.

[11] Washington Post, Democrats to Start Without GOP Input; Quick Passage of First Bills Sought, January 2, 2007.

[12] Kiplinger.com, Students' Pain, Sallie's Gain, November 17, 2006.

[13] U.S. PIRG, Cutting Interest Rates, Lowering Student Debt, January, 2007.

[14] Ibid

[15] Chronicle of Higher Education, In My Trusted Hands, December 16, 2005.

[16] Center for Responsive Politics, http://www.opensecrets.org