Student loan reform, which would cut out middle-man pariahs like Sallie Mae and save $87 billion over the next 10 years (which could go directly to students instead), is now in danger — thanks to the efforts of Jamie Gorelick.
The Student Aid and Fiscal Responsibility Act passed the House in September last year, despite the best attempts of lobbyists to buy Democrats like Paul Kanjorski. But the Senate has put off passage because of health care, and lobbyists like Gorelick have been using the time to peel off support:
President Obama called the idea a “no-brainer” last fall, predicting it would take billions of dollars from the profits of private lenders and give it directly to students, and many colleges were already moving to get loans directly from the federal government in anticipation of the next move by Congress.
But an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.
Political action committees for the lenders and company employees made $2.1 million in political contributions last year, with the money split evenly among Democrat and Republican candidates, the data showed. Sallie Mae’s PAC alone made $194,000 in donations.
There’s no reason for the government to guarantee the loans and insure the profits of private companies rather than do it directly. So, how did the lobbyists make headway?
Student loan lenders employ about 35,000 people around the country, although estimates differ as to how many jobs would be eliminated if the federal government took over all direct lending on student loans.
“We haven’t left any stone unturned — we’ll meet with anyone who will meet us,” Mr. Remondi said in an interview. “We’re trying to identify at least 12 senators who would be helpful in this process.”
At the same time, Sallie Mae and other lenders have staged a series of town-hall-style meetings at their job centers around the country to help mobilize opposition to the White House plan and collect thousands of signatures for a petition drive in support of their own plan.
“I would think that the White House would prefer not to make senators vote for something that is going to be very unpopular in their states — and for good reason,” said Jamie Gorelick, a former Clinton administration official who is now lobbying for the lending industry.
Gorelick worked in the Clinton White House as a Deputy Attorney General. Like Rahm Emanuel, she had no experience that should have landed her on the board of a mortgage lending giant like Fannie Mae. Despite that, she became a Presidential appointee to Fannie Mae in 1997, only to leave in 2003 — after collecting $26.4 million for her troubles.
Regulators found that those bonuses were calculated because management manipulated earnings:
Federal investigators (PDF) would later say that “Fannie Mae’s management directed employees to manipulate accounting and earnings to trigger maximum bonuses for senior executives from 1998 to 2003.” The New York Times would call the manipulations an “$11 billion accounting scandal.”
If you’re not familiar with the Fannie/Freddie scandal, read this classic Washingtonian article by Ross Guberman from 2002 where Chris Shays gets awakened in the middle of the night by lobbyists after he casually mentions he might to go after Fannie Mae. It’s a sewer of corruption spanning decades that embraces both Republicans and Democrats, and an object lesson on how big lobbying operations are more powerful than the President. In addition to all their other tricks, they used foundation money as payola (something that happened in the health care battle, too) because it’s almost untraceable, unlike campaign donations.
Gorelick has benefitted tremendously as lobbying money has flowed to the Democratic side of the aisle. In addition to SLM Corp (Sallie Mae), she also represents the scandal-plagued investment bank Lazard Freres. She’s also lobbied for JP Morgan, BP America, Lucent, the Medicines Company and Google in the past.
Influence peddling on the Hill may well kill student loan reform. It has managed to keep any meaningful investigation into the corruption at Fannie and Freddie from happening for decades — which, despite GOP fear mongering, was not caused by the CRE or because they handed out money to poor people. Rather, they used poor people as an excuse to hand out money to people like Jamie Gorelick.