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Obama To Nelson: We're Going Around You

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It might not be the most glamorous hill, but it's the one that Sen. Ben Nelson (D-Neb.) has vowed to die on. President Obama, however, isn't going to give him that chance.

Nelson is perhaps the Senate's fiercest protector of subsidies for student lending institutions, which, not coincidentally, are an engine of job growth in Nebraska. He has vowed to block any effort to reduce those subsidies. And given that Democrats have 58 members and generally need 60 to break a GOP filibuster, he can enforce his will on his colleagues.

An agreement struck between the president and House and Senate negotiators won't give Nelson that chance. A process known as "reconciliation" allows budgetary measures to be moved through the Senate with a simple majority, rather than 60. Multiple congressional sources say that congressional Democrats have decided to use reconciliation to go after student-lending subsidies, specifically to get around Nelson.

The Nebraska Democrat has become the bane of liberal bloggers and other progressive activists for his insistence on pushing legislation in a more conservative direction. Nelson's critics will no doubt relish the decision to make his threat of a 'no' vote meaningless.

Nelson spokesman Jake Thompson said that Nelson was not the only target of the reconciliation move and that other members of Congress represented constituents who would also be on the losing end of the reform. He noted that NelNet, the Nebraska student lending institution, employs 1,000 people and those jobs would all be at risk of being shipped to Washington, DC.

"He remains opposed. Whatever strategy he might pursue to exercise that opposition, we're not at that point yet," he said. "Maybe we can work something out."

UPDATE: An important comment from a reader e-mail:

I think the public needs to know exactly what the current student loan program does and why it is such a giveaway to the banks. I think people don´t know, probably because most of the news coverage is about whether or not a bill will pass rather than what it means.

Simply, the current system forces all student loans to be made through banks. The banks charge a medium range of interest--not terribly high, but not terribly low, either. The government GUARANTEES the loans so there is absolutely no risk for the banks.

During Clinton´s term, the student loan plan allowed universities to offer much lower loans by borrowing directly from the government. Students did not have to go through a bank and this shaved 2 or 3 percentage points off the cost of the loan. Neither did it cost the government anything since the money was repaid. But when the Bushies came in, they forced all loans to go through banks, jacking up the interest rates and guaranteeing a profit with no risk for the banks. The government still backed all the loans.

It is a classic example of how lobbying creates direct subsidies for businesses who win their lobbying efforts.

And a second reader writes in with a clarification, as well:

In your update regarding the student lending process through private student lenders, your e-mail commenter suggests that student loans are currently serviced soley through private lenders. This is not correct. The government has been running a direct lending program for years.It may not be used at all universities, but it is in place. Your article suggests otherwise and you may wish to correct the record.

Here is the link for the government's direct loan program: https://www.dl.ed.gov/borrower/BorrowerWelcomePage.jsp

It is important to note: the legislation would convert us from a mixed system to a direct government system. The current system is a huge giveaway to private lenders and the system should be switched over to the cheaper direct lending program ran by the Education department. However, you should portray an accurate picture of the current system.

Thanks for your attention to this issue!

Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America

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