Tuesday, November 08, 2005

Budget Battles

Behold the Budget Battle Royale!

The Republicans in the House have a steep hill to climb to pass their controversial budget which includes cuts for school lunch programs and student loan assistance, according to the Washington Post.

...[F]or now, Republicans concede they are well short of the votes needed to pass a bill that would require longer work hours to qualify for welfare, allow states to impose new costs on Medicaid beneficiaries, cut assistance for child support enforcement, trim student loan spending, cut back agriculture supports, and curb eligibility for food stamps.

The Senate last week narrowly approved legislation that would trim about $35 billion from the budget over five years, but that bill largely avoided the direct cuts to beneficiaries of federal anti-poverty programs contained in the House budget measure. Those proposed cuts have created strong misgivings among some Republican moderates, especially since a five-year, $70 billion tax cut is awaiting action that would more than offset the savings in the budget cuts.


The Democrats are stepping up to challenge this mean-spirited budget package:

House Democrats have compiled lists of committee votes for cuts to agriculture, student aid, child support and health care programs, as well as for oil drilling in the Alaska refuge, that Democratic leaders vow to use in next year's midterm congressional elections.

"This is going to test whether moderate Republicans are really moderate," said Rep. Rahm Emanuel (Ill.), chairman of the Democratic Congressional Campaign Committee. "There are a ton of people who will have a day of reckoning coming."

This week, Democrats will hold a conference call with a Wisconsin college student to talk about student loan cuts and will serve lunch at a District school to highlight the budget's impact on subsidized school lunches. They will also stage a mock hearing to tar the entire budget as an effort to finance tax cuts for the rich on the backs of the poor.


It'll be interesting -- if not depressing -- to see how moderate Republicans vote on this. Either way, it's a win for the D's. If they moderate R's vote for what will surely be an unpopular budget, they are that much more vulnerable, as Emanuel points out. If they vote against it, we're spared an awful budget bill.

Update: The Hill provides more details about Democrats' plans to combat the budget in the court of public opinion:

House Democrats and their allies are planning a weeklong assault on the GOP’s proposed budget plan, hoping to kill an impending vote on budget cuts and highlight internal division within the Republican Conference.

...

Rep. John Spratt (S.C.), ranking Democrat on the House Budget Committee, plans to hold the mock hearing tomorrow. Many of the caucus’s most senior members, such as Reps. Charlie Rangel (N.Y.), George Miller (Calif.) and John Dingell (Mich.), will likely participate in the hearing, which will probably take place in one of the rooms in the Capitol controlled by Minority Leader Nancy Pelosi (D-Calif.) rather than the committee’s usual room in the Rayburn House Office Building, said a spokesman for Spratt.

Headlining the event will be Georgetown University freshman Reggie Douglas, a former member of his high school’s NAACP board, who will talk about how the proposed budget measures will affect him personally. Joining Douglas on the witness stand will be representatives from various special-interest groups addressing potential cuts to child support, agriculture programs and Medicaid.

At the mock hearing, Democrats plan to argue that the spending cuts will be used to fund tax cuts rather than reduce the deficit; that the cuts will threaten vital services such as Medicaid, student loans, child support and food stamps, some of which benefit hurricane victims; and that the budget resolution will still increase the deficit even after these cuts are taken into account.

...

Aside from the mock hearing, other members are heading up separate events this week.

Members of the Congressional Hispanic Caucus, the Congressional Asian Pacific American Caucus and possibly the Congressional Black Caucus will hold an event on the Capitol steps to talk about “Republicans’ misplaced priorities,” according to a House Democratic aide.

Del. Eleanor Holmes Norton (D-D.C.) and members of the caucus’s 30-Something Working Group are planning to serve lunch at a school in Washington to call attention to Republicans’ planned cuts in the school-lunch program.

Rep. George Miller (D-Calif.) will host a conference call for reporters with a Wisconsin college student who is poised to lose student financial aid under the GOP plan.

On the floor, Rep. Frank Pallone (D-N.J.) plans to coordinate a series of one-minute and special-order speeches throughout the week lambasting the budget plan.

Democrats will likely criticize the cuts using variations on internal talking points distributed last week.

According to Pelosi’s Morning Message Points from last Thursday, Democrats will tie the budget cuts to the plight of Hurricane Katrina survivors.

“Republicans are moving forward to impose even greater sacrifice on Katrina families with a fiscally irresponsible budget that cuts student loans, healthcare and rural programs,” read one bullet point.

The Emergency Campaign for America’s Priorities, a labor-funded group aligned with Democrats, continues to pursue moderate Republicans in their districts, targeting 38 lawmakers in 16 states with press conferences and ads.

3 Comments:

Anonymous Mary Price said...

I'm concerned about all of the cuts this bill addresses, but mostly about the student loan cuts. And it's not just the cuts that bug me. It's about Sallie Mae. Why should they prosper when everyone else is going to eat it?

The following is a post I found on the Turner Report Blog and it has key excerpts from articles on this. I thought it covered it well.

Mary

From the Turner Report Blog:

Lack of competition for student loans and their refinancing is costing 20 million student borrowers and their parents a lot of money. (Competition is literally illegal in many cases.)

And it is costing the federal government even more because it raises the default rate.

Here are a few excerpts from news stories about it.

Congress is considering this over the next two weeks.

-- Fred

From the (California) Valley News
October, 2005
No Competition for Student Loans

The largest lenders in America have a plan to improve the federally guaranteed student loan program. They want to 1) eliminate competition; 2) raise prices; and 3) hope no one notices.


From The Street.Com
By Terry Savage
November 14, 2005

If the House bill passes, the vast majority of borrowers, who have already "refinanced" or "consolidated" student loans one time will never be able to do so again.

Not only is that a rotten deal, but the House is in the process of making it worse. New legislation proposed by the House would prohibit students who are in school from locking in their current rate of 4.75%. Instead, the rate would jump to 6.3% for this year's graduates, then to 7.9% for those graduating after this coming June.

A bill now pending in the Senate has similar, but less onerous, changes proposed. While the Senate bill would raise rates for new Stafford loans to 6.8% beginning next July, it doesn't prohibit in-school consolidation or charge the much higher consolidation rates that the House bill proposes. Instead, it continues to allow borrowers to consolidate at the weighted average of their current loans.

……

Just at the time when our country needs college graduates to keep up with technology changes in this competitive world, we're punishing students who borrow to finance their education. Why? In two simple words: money and politics. With over $300 billion in student loans outstanding, there's big money to be made by the relatively few lenders who dominate the market for student loans.
In fact, for years a quasi-governmental organization called Sallie Mae (Student Loan Marketing Association) dominated the entire market. Awhile back, the organization dropped its federal charter and morphed into a non-governmental, profit-making company that still uses the Sallie Mae nickname but is now officially SLM Corp). It controls so much of the student loan market -- nearly 25% of loans outstanding -- that in 2004 SLM was among the most profitable companies in the country.

Profit isn't a dirty word in this column. But these lenders get a guarantee against default on 98% of the student loan balance, as well as a guaranteed yield of 2.34% over the commercial paper rate on consolidation loans. That and other yield guarantees on in-school loans, have resulted in a net profit of over 1% of loan volume. You do the math. On a portfolio of nearly $100 billion, that's over $1 billion in profit!
Now SLM -- the old "Sallie Mae" -- is strongly behind the current proposals to make it more difficult and expensive for students and graduates to refinance the loans that Sallie Mae and big banks currently hold. If you're a student, graduate, or parent, it's time to make your voice heard as the proposals are currently before Congress. Making a college education more expensive is no way to solve our nation's global competitive problems. And that's The Savage Truth.


From the Madison (Wisconsin) Star
Congress Let’s Sallie Mae Squash Competition


There's more: Sallie Mae convinced Congress that too much competition to refinance student loans would be very messy and very inefficient. Once you refinanced your loans once, you were done. No matter if interest rates plunged and you were holding a loan at several points above market rates, there was nothing you could do about it.

Think of what would happen if America's largest mortgage lenders tried to pull a stunt like that: They'd either go to jail, or out of business or both. With Sallie Mae, the stock went up.

These and other legislative edges gave Sallie Mae an enormous advantage in the market place.

From the Chronicle of Higher Education
By Stephen Burd

Meanwhile, loan-industry officials have been pressing Congress to make a significant change to the federal loan-consolidation program, which allows borrowers to combine and refinance their federal student loans. If the industry gets its way, borrowers who seek such consolidation loans would no longer be able to lock in a low, fixed interest rate for up to 30 years, as they are able to now.

Lenders, like Sallie Mae and Citibank, which have lost a growing share of the market to new companies that specialize in refinancing, have pushed for a shift to variable rates for several years, to make the loan-consolidation program less attractive to borrowers.


From MSNBC.Com
By Liz Weston

"What's more, powerful lenders are pushing for a big change in the way consolidation loans work. If these lenders succeed -- and the odds are with them -- interest rates on future consolidations will be variable, rather than fixed, starting in July 2006. (Loans consolidated before then would not be affected.)

The proposal could add considerably to the cost of getting an education. The nonpartisan Congressional Research Service estimates variable rates on consolidated loans could add $3,000 to $5,500 to the average loan cost over 15 years. The U.S. Public Interest Research Group, a consumer advocate, thinks the potential cost could be closer to $8,000.

# posted by Fred : 10:04

10:48 PM  
Anonymous Ivan said...

I think Dick Morris said it best in today's issue of The Hill.

Morris is the author of Rewriting History, a rebuttal of Sen. Hillary Rodham Clinton’s (D-N.Y.) memoir, Living History.


The student-loan rip-off is a test of GOP rhetoric
Special-interest legislation doesn’t get much more obnoxious than the bill now making its way though Congress to clamp down on students and former students who want to refinance their loans at lower interest rates. They are about to be severely punished for seeking not only an education but a debt-free life afterwards.

While homeowners can refinance their mortgages as often as they want and relieve themselves of high-interest debt when rates cycle downward, student and former-student debtors are only permitted to refinance once for the lifetime of the loan! And now the House is considering legislation that would stop students who are in school from keeping their current interest rate of 4.75 percent and would instead force them to pay 7.9 percent, creating a lifetime burden entirely unjustified by the lending market.

Many students are locked into rates that approach 9 or 10 percent, reminders of the grim economic days of the early 1980s, and find themselves with no flexibility. Frequently, students use their once-only refinancing option shortly after graduation and find themselves helpless as the market interest rates drop ever lower.

Home-mortgage refinancing, often similarly guaranteed by Fannie Mae, has become a huge industry and has given many families alternatives to bankruptcy as they face huge debt burdens. But student loan refinancing — beyond the one shot now permitted — is blocked by special-interest regulation and legislation.

The legislative efforts by special interests reflect the power of the once quasi-public body Sallie Mae (Student Loan Marketing Association), which has now cut off all connection with the government and instead become a profit-making company unrelated to the government called the SLM Corp.

With a 25 percent share of the student loan market — more than six times that of its rivals — SLM has cashed in on federal guarantees against defaults on the one hand and blocked student refinancing on the other. As a result, according to columnist Terry Savage, writing for thestreet.com, SLM has made a profit of 1 percent over its loan volume of $100 billion — $1 billion in profit!

Since student loans constitute one-quarter of all outstanding loans, SLM has huge market power that it has not hesitated to translate into political clout through campaign contributions that water and nourish the Republicans who control the legislative process. In all, the SLM PAC contributed almost $140,000 to the members of the House Education and the Workforce Committee to lock in their preferential treatment.

Once SLM abandoned its federal charter and went into business for itself, this public-private hybrid should have lost its quasi-governmental status and been forced to compete in the private marketplace like anyone else. All regulations restricting refinancing or consolidation should be repealed. If there was ever an area in which the Republicans should effectuate their rhetoric and deregulate, this is it.

Student loans are the shackles that most young people take into the rest of their lives after leaving school. Keeping this debt hangover large and rendering it inflexible is about as anti- family a policy as you can get, forcing young people to postpone starting families because of the load of debt with which they begin life burdened. Yet it is the Democrats, led by Sen. Ted Kennedy (Mass.), who are most vociferous in battling for deregulation.

For President Bush, desperately seeking traction with which to regain his popularity, a crusade on behalf of student debtors, announced in his State of the Union speech, might be just the ticket. He could help himself get out of political red ink by mitigating the financial red ink in which an entire generation finds itself mired.

4:02 AM  
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