How Washington tries to strangle even the best ideas - student loan reform

Washington Monthly, Jan-Feb, 1995 by Steven Waldman

"Yes. We're getting the dinky ones to call her," Wellman assured him. At one point, Senator Simon entered the room, wearing a red bow tie, and sat next to Shireman. "I'm glad you're doing this," Simon said. "We have to understand that our friends on the other side are doing the same."

Simon rattled off a few suggestions on how to pressure particular senators. He suggested getting Bill Danforth, president of the Washington University in St. Louis, to call his brother, John Danforth, the Republican senator from Missouri. "I know him real well," Simon said, "but it really ought to come from you. The more grass roots you can generate, the better."

When Bill Ford, chairman of the House Education and Labor Committee, sat down to push the direct lending bill through, buried on page 59 of the "chairman's mark" was a one-sentence change that almost no one on the committee noticed, and no one in the press reported--yet it signaled one of the most significant retreats of the entire legislative process. A few weeks before the markup, the staff of the House Ways and Means Committee, which oversees the IRS, had read the Clinton administration's proposal for IRS collection, and, to use a common legislative expression, freaked out. The Ways and Means staff informed Ford and the White House that if anyone was going to change the responsibilities of the IRS, it would be Ways and Means, thank you very much. The administration could feel free to do "a study," and if the study favored IRS collection, the White House could make a recommendation to Congress. Then, and only then, the Ways and Means Committee would decide. The White House staff, never telling Clinton, who might have understood the importance of the provision and decided to fight for it, quickly backed down.

The problem was that the White House was relying on Ways and Means Chairman Dan Rostenkowski to push through much of its economic plan. Staffers didn't feel as though they could butt heads with him over something this seemingly small. Amazingly, no one in the administration argued the point with Rostenkowski. Ford's committee was happy to drop the provision, too, fearing--in the tradition of petty jurisdictional feuds--that if Ways and Means got involved, it would eat the whole national service-student loan enchilada.

But this tiny provision was crucial to the success of the whole reform. Without a significant IRS role, it would be difficult to do income-contingent loans and keep the program from turning into the hard-to-collect boondoggles other student loan initiatives had become. Only the IRS could accurately and efficiently assess a person's income and be sure to collect. "It was a lousy cave-in," said Joe Flader, a staff aide to Rep. Tom Petri, a Republican who had long pushed for ability-to-pay loans.

Over the next two months, the industry battled with direct lending supporters through committee markups, hearings, and floor votes. The Senate voted to try direct lending in half the schools and bank-based lending in the other half. At a climactic House-Senate conference, legislators haggled over the speed of a direct lending phase-in, how much money it would save the government, and how the banks would react.