As we reported on Tuesday, Qorvis Communications, a top public relations firm in Washington, has taken the lead in the student loan industry's efforts to manufacture grassroots student opposition to legislation that would eliminate the Federal Family Education Loan (FFEL) program. But getting students to rally behind an unpopular industry that profits from their indebtedness has not proven to be an easy task. The firm's desperation has become all too evident in recent weeks.
Take, for instance, the case of Patrick McBride. In a press release announcing the launch of its "Protect Student Choice" public relations effort, Qorvis officials listed McBride, a student at Vanderbilt University, as one of four "local campaign members" -- with the others being leaders of non-profit student loan agencies.
But who is McBride? A former colleague of ours, the enterprising Ben Miller of Education Sector, sought to find out. In an interview he conducted with McBride, Miller learned that he was a first-semester freshman who got interested in the issue while doing research on the Internet. McBride, who would not say whether or not he had taken out student loans (although he added that he "did not have a stake" in the issue), was initially "ambivalent" about the student loan reform legislation. But after talking to David Mohning, the university's financial aid director and a longtime supporter of the FFEL program, he was convinced that the bill was a bad idea.
It's no wonder Americans are deeply suspicious of special interest lobbyists in Washington. Take the student loan industry's latest efforts to kill legislation pending in Congress that would end the Federal Family Education Loan program. It's a prime example of special interest lobbying at its worst.
In 2007, shortly after President Bush signed into law a bill cutting government subsidies to lenders and guaranty agencies, the student loan industry bought into a new strategy to thwart any future Congressional action that might reduce its subsidies further: manufactured grass roots opposition (otherwise known as astroturfing). With Democrats firmly in control of Congress and in a good position to take back the White House in the upcoming presidential election, industry officials knew that the FFEL program was in jeopardy.
Enter Qorvis Communications, a prominent Washington-based public relations firm that had gained notoriety earlier in the decade for its work on behalf of the Saudi Arabian government. Eager for the loan industry's business, one of the firm's partners made a pitch for the company at the 2007 legislative conference of the National Council of Higher Education Loan Programs, a trade group that represents guaranty agencies and non-profit lenders. In a power-point presentation entitled "What Just Hit Us?", this Qorvis executive said that the loan industry had lost the loan subsidy battle because it "had no organized constituency" to "counter" its critics.
[Higher Ed Watch concludes its guaranty agency series today by offering recommendations for reforming and fixing many of the most pressing problems we have identified with these agencies.]
Guaranty agencies' subsidies, responsibilities, and relationships are better suited for a different era of federal student aid policy. Their outdated roles and relationships with lenders not only undermine the underlying policy goals of the original student loan program, they lead to inefficient uses of taxpayer dollars and a variety of practices that harm rather than help student borrowers. Today, the New America Foundation is releasing "Rethinking the Middleman," a report that explores the history and policy shortcomings of guaranty agencies and provides reform recommendations to Congress and the U.S. Department of Education.
The paper recommends that policymakers take the following steps to correct many of the problems with guaranty agencies we have previously identified:
Eliminate the Guaranty Agency Insurance Role
The initial purpose of guaranty agencies was to cover the costs incurred by student lenders when a borrower defaults on a loan, with some assistance from the federal government. Today, guaranty agencies perform that role by making payments to lenders entirely with federal funds held in trust. The vast majority of these funds are reimbursed by the U.S. Department of Education, making guaranty agencies a middleman with minimal stake in the FFEL Program.
On May 21, René Drouin, the president and chief executive officer of the New Hampshire Higher Education Assistance Foundation (NHHEAF) Network Organizations, appeared before the House of Representatives Committee on Education and Labor to discuss reforms to the federal student aid programs. Drouin and the New Hampshire guaranty agency received heaps of praise from Representatives, who lauded them for fulfilling their charitable mission by establishing an educational foundation and providing a college planning center for Granite State students.
But no mention was given to the other ways guaranty agencies like NHHEAF spend their taxpayer subsidies, including how much they compensate top officials. Curious, we looked up the New Hampshire agency's latest 990 tax form and found that Drouin had earned a salary in 2007 of $550,072, an amount that seemed high to us considering the agency's size. So we decided to dig further and see how Drouin's compensation compared to the leaders of the 34 other guaranty agencies. Using Guidestar, a repository of nonprofit tax filings, and assorted state and newspaper databases, we found compensation information for the highest paid employee at every agency except the Oklahoma Guaranteed Student Loan Program. That information is presented in the table below.
Higher Ed Watch continues its series that takes a closer look at individual federal student loan guaranty agencies. The introductory post can be found here. The first two posts looking at the guaranty agencies for Georgia, Washington, and Idaho can be found here and here. Today, the series continues with an examination of TG.
TG, or the Texas Guaranteed Student Loan Corporation, is the designated guaranty agency for the Lone Star State. A public, nonprofit company, TG was the third largest guaranty agency in 2008, providing insurance for a total of 1,468,078 loans worth a total of $7,277,747,627.
Unlike the first two agencies we looked at, TG does not have any explicit connections to any particular lenders. Instead, TG has two aspects that are particularly worth discussing: the way it balances its roles within the state and nationally, and its past attempts to change the way it is compensated and structured.
So far in our series we have looked at one guaranty agency that is part of the state government and one that has absolutely no ties to the governments in the states in which it operates. TG falls somewhere in between these extremes: An agency that has ties to the state, but is also not constrained by them.
Something fishy appears to be going on in South Carolina.
Financial reporting documents that Higher Ed Watch obtained from the U.S. Department of Education suggest that the state student loan agency in South Carolina may be exploiting its ties to a closely affiliated guaranty agency to receive excessive taxpayer subsidies from the federal government. At issue is the guarantor's apparent abuse of an emergency program that the government has in place to ensure that all eligible students are able to obtain federal student loans.
The federal lender-of-last-resort program is administered by the designated guaranty agency in each state to provide government-backed loans to students whose applications have been denied by other lenders. Since the agency must give qualified borrowers a loan-of-last-resort, the federal government agrees to take on all the risk associated with the debt. This means that holders of these loans are reimbursed for 100 percent (page 8) of any losses sustained due to borrower default, as opposed to ordinary loans made through the Federal Family Education Loans program (FFEL) that are reimbursed at only a 97 percent rate.
Last week, Higher Ed Watch announced the start of a series taking a closer look at individual federal student loan guaranty agencies. Today, we examine one such agency, the Georgia Student Finance Commission.
The designated guaranty agency for the state of Georgia is the Georgia Higher Education Assistance Corporation (GHEAC). Originally founded in 1965, GHEAC is one of the smaller guaranty agencies -- it guaranteed 72,125 new loans worth $254.6 million in the 2008 federal fiscal year, ranking it 27th out of the 35 guaranty agencies in new loans guaranteed and 29th for new loan volume.
Despite its size, GHEAC is well-connected within the state of Georgia, stemming from its close-knit relationship with a nonprofit student loan company, ties to the state government, and its administration of a popular merit-based grant program that benefits hundreds of thousands of students in the state each year. This setup creates opportunities for GHEAC to build goodwill and name recognition among Georgians, but also opens the door to potential conflicts of interest in some of its roles as a guaranty agency. These potential conflicts are certainly not unique to Georgia but are widespread among guarantors across the country that are closely linked to lenders or engage in lending themselves.
The Congressional Budget Office (CBO) released student loan estimates this week showing that the federal government spends significantly more to administer the Federal Family Education Loan (FFEL) program than it does to run the U.S. Department of Education's Direct Loan program, thanks to student loan guaranty agencies.
This finding blows a hole in a key argument that the student loan industry and its supporters have long relied on to cast doubt on government estimates showing that FFEL loans cost more than those made through direct lending. Lenders have argued that the government's administrative costs are substantially higher in the Direct Loan Program than in FFEL. Industry officials have been able to make this claim because in the past, federal budget officials have left out from their estimates a very big piece of FFEL administrative costs: guaranty agency fees. But not anymore.
This year, for the first time, CBO included federal payments to guaranty agencies in FFEL program administrative costs. As shown in the table below, administrative costs in 2009 are expected to be $1.3 billion for FFEL and $700 million for direct loans.
Discussions of President Barack Obama's proposal to eliminate the Federal Family Education Loan (FFEL) program have focused largely on its ramifications for major student loan providers. But there's another group deeply invested in preserving their livelihood through the FFEL program: student loan guaranty agencies. Though complex and often misunderstood, these agencies could play a crucial role in the debate over FFEL due to their strong political connections and public relations friendly activities. But what do these agencies actually do, what are they paid to accomplish, and just how connected are they to loan companies and states? Higher Ed Watch will attempt to answer these questions over the next few weeks with an occasional series on getting to know specific guaranty agencies.
Guaranty agencies have been involved with student loans since the 1950s, when a handful of states opened agencies to help college students obtain affordable loans. Soon after Congress created the original version of the FFEL program in 1965, it authorized the involvement of these agencies to encourage lenders to offer student loans by providing default insurance. Congress also gave the guarantors important oversight responsibilities, such as ensuring that lenders make a concerted effort to keep delinquent borrowers from defaulting. (More on the history of guaranty agencies can be found here.)
Warning, Arkansas Congressional delegation, you are about to start hearing from financial aid administrators in your state upset about President Obama's proposal to eliminate the Federal Family Education Loan (FFEL) program. If you listen carefully though, you'll notice that the complaints sound awfully alike. That's because they come straight from talking points provided by the Student Loan Guarantee Foundation of Arkansas (SLGFA), the state guaranty agency.
On Tuesday, the Arkansas agency sent out a special alert to college financial aid administrators in the state entitled "School Support Needed to Help the Federal Family Education Loan Program." The guarantor warns the college officials that urgent action is needed. "The budget process is moving very quickly, and it is critical that your Congressional members hear from you this week," the alert states. "If you do not have time to write a letter, please call and express your views" related to "the merits and benefits of FFELP."
But just in case the aid administrators who receive this message can't think of anything good to say about the FFEL program on their own, the Arkansas agency helpfully provides them with "information points that will help you craft your message." Among other things, the aid administrators are asked to tout "local services offered by SLGFA and its trading partners." And for those aid officers who are not sure who to contact, the guarantor is considerate enough to provide "the name, e-mail address, and telephone number for each of the education aides working for your Congressional delegation."