Loan providers forced to cut employees

While many Democrats celebrated the passage of health care reform Sunday night, several people in Indiana took a more somber view on the portion of the legislation that included student loan reform. Among those disheartened by Congress’s actions were Sallie Mae employees.

Sallie Mae, a major student loan provider, has its largest office in Fishers, Ind. For years, the company has been involved in supplying federal and private loans to students. If the reconciliation bill’s amendments to health care pass the Senate and are signed into law, private lenders will no longer have the ability to originate student loans.

The effects of this portion of the health care bill have concerned several of the 35,000 people employed in the lending industry. Phillip Walsh, a senior director at Sallie Mae’s office in Fishers, said the company will lose approximately 2,500 of its 8,500 jobs.

Walsh expressed his disappointment in the small amount of attention that student loan reform has received within the health care bill. Prior to the voting on health care reform, Sallie Mae had offered an alternative proposal to student loan reform that would have saved as much money as the current bill.

“In fact, $83 billion as scored by the Congressional Budget Office would have been saved had an alternative proposal been considered in a bipartisan way,” Walsh said. “None of these jobs would have been lost.”

Patricia Christel, a spokesperson for Sallie Mae, addressed the positive influence it has had on students and said the company takes pride in its record of success.

“In fact, we have a track record that is one-third better than the government’s direct student loan program,” Christel said in an e-mail interview. “Because we share in the risk if a loan defaults, we have ‘skin in the game,’ and we can produce superior results that help students build good credit.”

Although Sallie Mae and other lenders received little support from Congress, Rep. Dan Burton, R-Ind., voiced opposition to the health care bill and its student loan provisions. Burton represents Indiana’s fifth district, which includes Fishers.

“I think the student loan takeover was appealing to Democrats on the fence,” said Burton’s press secretary, John Donnelly. “The sweetener helps drum up support for Democrats who may have not otherwise voted for the (health care) bill.”

Both Sallie Mae and Burton agree that the lack of competition among lenders that will result from the student loan reforms will negatively affect students. This elimination of competition will require students to obtain all loans through a completely government-run program.

The U.S. Department of Education, however, carries a different view on the student loan reform.

Jane Glickman, a press director with the DOE, said the loan process for students would become much easier and that the legislation would allow students to get loans directly from their financial aid offices.

In addition to simplifying the process, Glickman also said the government would be able to provide more Pell Grants to students from the savings obtained.

“It’s wonderful that we are able to increase Pell Grants for students because of this,” Glickman said. “Instead of subsidizing the banks, we will be helping more students. In 10 years, Pell Grants will be able to go up from the current $5,550 in 2010 to $6,130 in 2019.”

Sallie Mae employees are not convinced by the Department of Education’s optimistic outlook.

Walsh pointed to the facts behind the proposed increases in Pell Grants.

He said students wouldn’t see a decrease in the interest rate they pay on their student loans. The government can borrow money for loans at a much lower rate than private industries can, he said. Although the government could charge a smaller interest rate than private industries, the rate will remain the same, and the savings will be applied disproportionately to funding the health care bill, reducing the deficit and expanding Pell Grants.

“You might have read that $61 billion of money that would have gone to the big lenders and Sallie Maes of the world are now going to be provided to students in the form of Pell Grants,” Walsh said. “That’s just not true.”

— Vince Zito contributed reporting to this story.