UPDATE: Budget Ends Student Loan Payments To Private Lenders
February 26 2009 - 11:34AM
Dow Jones News
The Obama administration would end fees paid to banks that
provide loans to students, a move that would effectively end
private sector student lending and save the taxpayer $47.5 billion
over the next decade.
All student loans would be administered through the Education
Department's direct lending program, under the proposal included in
the administration's budget framework released Thursday.
Student loans themselves don't generate significant earnings for
banks because of the high level of defaults, so the fees paid by
the government are the main incentive for lenders to take part in
the program.
One of the largest players in the student loan market, SLM Corp.
(SLM), saw its shares fall 25.9% as word of the proposed change
filtered out Thursday morning. SLM was down $2.17 to $6.22 a share
in recent trading on the New York Stock Exchange.
The proposal is likely to be greeted favorably by congressional
Democrats who have sought to limit private sector involvement in
student lending in recent years.
The move to scrap the subsidies would be the largest single
source of savings from a reduction or elimination of a nondefense
government program identified in the budget plan.
The budget proposes spending $13.4 billion in a drive to end
wasteful spending in Social Security, health care programs and tax
collection. The outline forecasts this would save $48.5 billion
over 10 years.
User fees charged to various industries, most notably a $4.8
billion levy on telecommunication companies acquiring radio
airwaves, would raise $7.2 billion by 2019, the budget states.
There are a handful of other programs the administration
proposes to remove or reduce in scope, and President Barack Obama
said more programs would be on the chopping block when he delivers
a more detailed budget in April, and in subsequent years.
"In the little more than a month my administration has had in
office, we have not had the time to fully execute all the budget
reforms that are needed, and to which I am fully committed," Obama
said in the budget document.
In his joint address to Congress on Tuesday night, Obama said
his economic advisers had identified $2 trillion in savings from
the federal budget over the next decade.
The bulk of the savings appears to come from reduced
expenditures stemming from the wars in Afghanistan and Iraq and the
ending of the tax cuts for wealthy Americans instituted by the
administration of President George W. Bush.
The plan would raise close to $637 billion over 10 years by
reversing the largest of Bush's tax cuts.
The wars are slated to cost $140 billion this year, and $130
billion in fiscal year 2010, but starting in fiscal 2011 the Obama
administration estimates war funding at $50 billion annually.
The budget plan would also raise taxes on businesses by $353.5
billion over the next 10 years, with the bulk of that amount coming
from taxing the foreign profits of U.S. multinational firms and
repealing tax breaks for oil companies.
Among the other programs facing cuts, farm subsidies to
agriculture businesses earning more than $500,000 in revenue a year
would be scrapped leading to savings of $9.8 billion over the next
decade.
Farmers would lose $5.2 billion in crop insurance subsidies
between 2010 and 2019 under the budget proposals.
The proposals are likely to be unpopular with lawmakers who have
resisted cutting farm subsidies in the past.
A further $570 million in savings would come from the ending of
cotton storage payments, $360 million from the scrapping of a
program to promote U.S. agricultural brands overseas and $126
million in other payments to high income farms.
The plan would also eliminate federal payments for cleanup of
abandoned coal mines when the cleanup has concluded. This
restriction would save $1.5 billion over a 10-year period. Oil and
gas companies would be charged a "use it or lose it" fee on
offshore leases in the Gulf of Mexico, raising $1.2 billion by
2019.
Congressional Democrats attempted to impose a similar provision
in an energy bill that was defeated last year.
-By Corey Boles, Dow Jones Newswires; 202-862-6601;
corey.boles@dowjones.com