With the House set to take up legislation this week that would sharply cut subsidies to student loan companies by about $19 billion, lenders are trying to do something they have barely had to bother with in recent years: appeal to Democrats.
The companies have been scouring for partners in the Democratic base to help them make their case against the bill and a companion one in the Senate.
Sallie Mae, the nation’s largest lender, has met with representatives of historically black colleges; with Michael L. Lomax, chief executive of the United Negro College Fund; and with members of the Congressional Black Caucus, arguing that cuts in lender subsidies could make it harder for black students to borrow.
Tom Joyce, a spokesman for Sallie Mae, said the company was talking to other institutions, too. “We’re certainly letting schools know that now is the time to weigh in with their views,” Mr. Joyce said.
The Consumer Bankers Association, for its part, reached out to organized labor, directly contacting union locals around the country. In one case, union officials were asked to sign a letter to Democratic lawmakers, warning that changes to the loan program could make it harder for students to pay for college.
The lenders have assembled an armada of Democratic lobbyists and communications specialists. Sallie Mae, for example, hired former Senator John B. Breaux, a Louisiana Democrat, as well as Mark Schuermann, a former senior aide to former Representative Harold E. Ford Jr., a Tennessee Democrat who lost his bid for a Senate seat last year.
And J. C. Flowers & Company, a private equity firm in the process of buying Sallie Mae, has retained Stephanie Cutter, a former press secretary to Senator John Kerry of Massachusetts, the Democratic presidential nominee in 2004.
The tactics are new for an industry that for years relied on its close ties to Republicans. But President Bush broke with lenders with his budget this year when he proposed cutting subsidies to loan companies by nearly $16 billion over five years.
Moving to advance Democratic plans to overhaul the student loan system, the House plans to vote this week on legislation that, in addition to cutting subsidies by about $19 billion, would increase the size of Pell grants to poor students, cut the interest rates paid by student borrowers and cap students’ monthly loan payments at 15 percent of their discretionary income.
The bill would also require the Education Department to test the possibility of auctioning off the right to make student loans, giving that business to the lender that proposed to charge the least. Such an auction could end the system of subsidies to student loan companies.
The Senate plans to follow later this month with its own bill that would cut subsidies by $18 billion and increase Pell grants but not cut interest rates for borrowers. Because of special language inserted in the budget, the legislation is not subject to a Senate filibuster and needs only a simple majority vote to pass.
The White House revealed its preference yesterday, stating that if the House bill were the one to win final approval, advisers would recommend that the president veto it for not directing enough new money to the Pell grants for low-income students.
The lenders say they are fighting for survival. “Our view is that the combination of these cuts could destabilize the program significantly,” said Kevin Bruns, executive director of America’s Student Loan Providers, a Washington group. “Some companies are going to exit.”
The sponsors of the bills were dismissive of the accusations that black students would suffer. Senator Edward M. Kennedy, Democrat of Massachusetts and chairman of the Education Committee, said, “If Sallie Mae really wants to help minority students, it should support our bill to provide the largest increase in student aid since the G.I. Bill.”
But some of the lobbying appears to be paying off. Senator Mary L. Landrieu, Democrat of Louisiana, wrote in May to the majority leader, Senator Harry Reid of Nevada, echoing loan industry talking points.
“Some of the changes being discussed could have a very harmful impact on students, parents, colleges and universities in Louisiana, particularly those students attending the many historically black colleges and universities in our state,” Ms. Landrieu wrote.
Ms. Landrieu’s press secretary, Adam Sharp, said her letter was prompted by a letter from the president of Dillard University, a historically black institution in New Orleans. Mr. Sharp added that the senator was still studying the legislation and had not taken a final position. A spokeswoman for Dillard, Karen Celestan, said lenders had not communicated with the university.
Another Democrat, Representative Lincoln Davis of Tennessee, wrote a letter to Speaker Nancy Pelosi of California, expressing worry that cuts to the guaranteed loan program could hurt students. Mr. Davis’s press secretary did not return calls for comment yesterday.
Supporters of the legislation say they are being forced to work harder than they expected to shore up support, given recent revelations of conflicts of interest in the student loan industry.
“It’s made us increasingly busy in explaining why some level of subsidy cuts is really appropriate,” said Luke Swarthout, of the U.S. Public Interest Research Group in Washington.
The unions have also swung into action to counter lenders’ efforts to make inroads with their members.
“The student loan program has been subject to abuses that harm, not help, students and their families,” Richard L. Trumka, the secretary-treasurer of the A.F.L.-C.I.O., wrote to national and state union officials and the organization’s executive council.
Harrison Wadsworth, special counsel to the Consumer Bankers Association, said the organization had contacted chambers of commerce, as well as unions. “We didn’t target union leaders,” Mr. Wadsworth said.
At the United Negro College Fund, Dr. Lomax said he had listened carefully to the arguments of Sallie Mae and was unconvinced. “I was not prepared to support their position,” Dr. Lomax said.
