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

Washington Monthly, Jan-Feb, 1995 by Steven Waldman

But no one had more lobbying clout than Sallie Mae, which pulled together an all-star team of great Washington influence-peddlers. Following Sallie Mae's stock crash, CEO Hough decided they would have to be extremely aggressive. "When you lose $3 billion in wealth you can't just say to shareholders, 'Hey, don't worry,'" Hough said. "You have to do something." The company retained Harry McPherson, special counsel to President Lyndon Johnson and a top Washington rainmaker, who got Hough an appointment with A1 From, the Democratic Leadership Council founder, who was heading up Clinton's domestic policy transition team. To lobby the White House, it hired former Carter administration official Anne Wexler and her colleague at the Wexler Group, Dale Snape. On one occasion Wexler enlisted the help of another of the firm executives, Betsey Wright, a close Clinton aide in Arkansas for years and arguably the most plugged-in lobbyist in Washington. Perhaps Sallie Mae's most important asset was Jerry Hultin, the man who had run Clinton's campaign in Ohio and was a friend of the president's and of Hillary's from law school. Hultin accompanied Hough to several meetings with key Clinton administration officials.

Bill Clinton assigned scrapping the existing student-loan system to two savvy, professional politicians: Secretary of Education Richard Riley, who had overcome a devastating physical disability to become one of South Carolia's most popular governors, and Deputy Secretary Madeleine Kunin, a three-term governor of Vermont.

One of the first things Kunin did when she arrived in Washington was read the General Accounting Office report on the Department of Education, which stated that the student-loan program was at "high risk" of catastrophe because of colossal management problems. "So this is what we've gotten ourselves into," Kunin said to Riley the next time they met. Riley and Kunin soon found out that some Department of Education staff--i.e., the bureaucrats--had no desire to throw out the student-loan program with which they had become comfortable, and had serious doubts about whether ability-to-pay loans and IRS collection could work. "Like any bureaucracy, they had built relationships with existing players," Kunin said later. The permanent staff at the Office of Management and Budget believed it would be nearly impossible to administer a massive income-contingent loan program. And the IRS careerists feared that handling student loans would drain resources from their mission of collecting taxes. At least, Riley and Kunin thought, they could count on support from the colleges. But that, too, turned out to be a false assumption.

Higher education is represented in Washington by more than a dozen trade associations, each with a specific constituency--big state schools, private colleges, community colleges, trade schools, financial aid officers, Jesuit schools, and medical schools. Each had a slightly different reason for disliking the Clinton plan.

The private schools, as represented by the National Association of Independent Colleges and Universities, loved ability-to-pay loans because the loans would help students afford their higher tuition. But they seriously doubted the Education Department could manage a "direct lending" program. Under direct lending, the department would put up the cash for Heather Doe's loan and Paiselley College would be responsible for disbursing it. College officials were nervous about taking on that role, particularly in partnership with the notoriously incompetent Education Department, which, among other things, had never quite figured out how to keep track of millions of outstanding loans.