The House passed legislation last year to end the program, which lets lenders offer student loans at low rates through partial government guarantees, and the Senate plans to follow suit soon. Though it has been stalled by the lingering debate over health-care reform, the measure enjoys strong Democratic support, in part because dismantling FFELP is projected to save the government $87 billion over 10 years.
On Wednesday, Education Secretary Arne Duncan ratcheted up his calls for ending the program, arguing banks have benefited long enough.
"The banking industry has had a free ride from taxpayers for too long," he said in a conference call with reporters. "They have had their bailouts. They have had their subsidies, and they've paid themselves very well while working families and students are struggling to make ends meet."
Duncan said taxpayers paid up to $8 billion a year to subsidize student loans.
"Essentially, we give the banks our money, and they lend it back out to students with interest, and if the students can't pay, we pick up the tab," he said.
Political analysts said the cost-savings potential is too attractive for Congress to let pass by.
"The administration has repeatedly called for eliminating the FFELP and using the savings to boost educational spending," said Jaret Seiberg, an analyst with Washington Research Group, a division of Concept Capital. "Given the success Democrats have had in curbing the private sector's involvement in student lending in order to fund politically popular education initiatives, one has to believe the president is going to succeed in this latest effort."
Lenders, including the Student Loan Marketing Association, or Sallie Mae, are pushing an alternative to ending FFELP that they hope will gain some momentum on Capitol Hill. The plan, the Student Loan Community Proposal, would let lenders continue to originate and service student loans, but sell them to the government, eliminating the need for costly credit subsidies.
Sen. Robert Casey, a Pennsylvania Democrat whose state is home to thousands of Sallie Mae employees, has shown the most interest in the lenders' idea but has not committed. He requested the Congressional Budget Office study the alternative last year.
"The short answer is I don't know yet where I'll come down on that question," he said during a call with reporters Wednesday. "We want to make sure that as we examine both the impact on student lending, and the availability of lending for young people to go to college, we also need to assess, in states like Pennsylvania, the potential job impact. And those are among the considerations I'm weighing right now, but I have not made a decision yet."
Still, observers said it is unlikely the idea will gain traction. The administration's plan would create larger savings, and Duncan shot down the alternative on Wednesday. It "would replace subsidies with fees on taxpayers, and the lenders' plan would cost taxpayers $13 billion more over 10 years and by definition cover many fewer students," Duncan said. "Americans want to invest in their children and their future, and not in profit for banks."
Congress has already succeeded in making inroads at unraveling banks' participation in the federal student loan marketplace. The government guarantee and other benefits for FFELP lenders were significantly slashed through reforms in 2007 that made such loans much less profitable.
