NEW YORK (Fortune) — Supposedly, the departure of Sallie Mae CEO Tim Fitzpatrick, which was announced Tuesday, is a way for the embattled student loan giant to improve its image in Congress. This is critical, because both Democrats and President Bush want to slash the rich subsidies that student lenders, including Sallie Mae (Charts, Fortune 500), receive. That’s obviously not in Sallie’s best interest, particularly given Sallie’s pending $25 billion buyout, led by private equity firm JC Flowers.
Fitzpatrick’s departure may be a public way to placate critics, but behind the scenes, Sallie is doing exactly what Sallie always does, which is to lobby. And right now, Sallie’s lobbying involves a particularly unpleasant form of racial politics. While Sallie has suffered a setback, the battle is far from over.
The budget reconciliation instructions released by the House Budget Committee last week include a provision that mandates $750 million of savings from the Education and Labor Committee over five years. The word in Washington is that Democrats plan to use that procedural vehicle possibly to force more radical reform. Theoretically, Congress could arrive at the $750 million figure by cutting $20 billion in subsidies to lenders, and spending $19.25 billion to reduce the interest rates students pay. As part of that, Congress could make a renewed push for the government’s direct loan program, which provides loans directly to students, bypassing private lenders.
Not surprisingly, Sallie doesn’t want this to happen. So Sallie has been reaching out to members of the Congressional Black Caucus, implying that a decrease in its subsidies will mean that the company will be forced to cut back on loans to students who attend historically black colleges and universities. (more…)
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