A Washington Mystery

July 11, 2007

The e-mail seemed like just the sort of missive a Washington lobbyist would send about an important piece of legislation in Congress. It made perfect sense for the National Association of Student Financial Aid Administrators, whose members (colleges and lenders) have a major stake in the "budget reconciliation" legislation that the House of Representatives will be considering as soon as tomorrow, to put out guidance on the pros and cons of the legislation for officials to use in conversations with lawmakers. Pell Grant increases, good. Cuts to lenders, bad, that sort of thing.

Except for one hitch: Some of the positions put forward in the e-mail -- like a call to raise interest rates on parent loans in the Direct Student Loan Program -- clash with the association's stated stands on issues. Other statements in the e-mail, with the subject line "NASFAA talking points," appeared to put NASFAA strongly on record on issues on which it had purposefully remained on the sidelines.

So when the e-mail began circulating among college financial aid officials and lobbyists Monday, some were surprised, and others disturbed. An aggressive new tack for the financial aid association, they wondered?

Nope. A fraud, and, depending on how you look at it, another grand Washington tradition: the dirty trick.

Exactly by whom and for what purpose is not clear -- though speculation is rampant -- and may not become clear unless and until someone steps forward to claim responsibility, or some technological wiz is able to trace the e-mail's origins. But no matter who is responsible, the fake e-mail suggests just how high the stakes are seen to be in the current debate over proposed budget cuts in the student loan programs.

A little background, for those of you who don't closely follow the ins and outs of Washington budget politics: Congress is in the throes of negotiating legislation that would cut billions of dollars in subsidies to lenders and student loan guarantee agencies and use most of the proceeds to increase spending on need-based financial aid for students. Also in the works is legislation to renew the Higher Education Act, the law that governs many federal programs for colleges and students.

Lenders have portrayed the budget legislation as potentially devastating for them, suggesting that cutting too deeply into profits would drive some companies out of the student loan program. Advocates for students note that lenders have made such an argument many times in the past, and that students aren't having any trouble finding a loan provider these days.

Numerous Washington higher education groups have weighed in on the budget reconciliation bills in the House and Senate, and parallel legislation to renew the Higher Education Act. So the idea that the financial aid administrators' group would do so too seemed perfectly logical to the financial aid officers at several universities who received an e-mail in recent days that appeared to be from the group.

But when those aid directors shared the content of the e-mail with their campus government relations officers, and they sent the e-mail to Matt Owens, assistant director of federal relations at the Association of American Universities, Owens was struck by the fact that some of the NASFAA positions were at odds with those taken by most college groups. Most notably, the "talking points" recommended increasing the interest rate on parental loans in the direct loan program (and dropping the comparable rate in the guaranteed loan program so the rates are equal), while NASFAA has endorsed equalization but argued that it should not be accomplished by increasing any rates for students or parents. The memo also condemned the planned cuts in lender subsidies, while NASFAA has taken no formal position on the cuts.

"Something seemed off," said Owens, whose suspicions were confirmed when he called Larry Zaglaniczny, NASFAA's director of Congressional relations, late Monday. Zaglaniczny didn't know a thing about it.

"God no, it's not ours," Zaglaniczny said in an interview Tuesday, during NASFAA's annual conference in Washington. In an e-mail message sent to college leaders, Congressional staffers and others Tuesday morning, Zaglaniczny said that we "absolutely and categorically reject this e-mail. It is not a NASFAA work product. It is fiction and we are amazed and angry that someone is using our name to promote positions that we either have not yet taken or that are opposite from our views."

Some of the positions -- praising proposed increases in the maximum Pell Grant and more funding for other need-based student aid programs -- are consistent with NASFAA's stances, "which gives the bogus e-mail plausibility," Zaglanizcny wrote.

But "distortions and lies appear in the e-mail," too, he wrote. "What the bogus e-mail states as NASFAA’s position is a total reversal of what we believe and advocate. Student loan interest rates should never be increased to equalize one program with another; nor is a split the difference compromise acceptable to us." NASFAA has not yet taken a position on the idea of auctioning the right to provide student loans, which the faux e-mail opposes, and "we have made no comment on current proposals to reduce lender industry subsidies, except to express that, as we have always said, we do not want to undermine the fundamental financial viability of the FFELP Program," Zaglanizcny said.

Given the antipathy that the "talking points" show for proposed cuts in support for lenders, there is widespread speculation that one party or another in the guaranteed student loan program was responsible for the fake memo.

Fingers might be inclined to point at Sallie Mae, which is widely acknowledged to have a mighty lobbying machine. But Tom Joyce, a spokesman for the lending giant, said the memo is "absolutely not us."

John Dean, special counsel to the Consumer Bankers Association, which represents many major student loan providers, said "we totally disavow" the e-mail, and "I hope that nobody on our side is responsible for it, and I hope the perpetrators are eventually discovered."

Dean said that "whoever did it, it's a self-destructive act." The fabrication will "play into the hands of people who already have a low level of confidence" in the student loan industry, he said.

The prospect that the e-mail brouhaha could further undermine the position of lenders as Congress prepares to take up the budget reconciliation bill prompted just a bit of speculation that the fake e-mail came not from a lender but from someone trying to make the lenders look bad.

Presumably someone out there can shed light on this, perhaps by following the e-mail chain back to its beginning. Anyone?

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