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The first of the letters went out in March. Rep. George Miller (D-Calif.) and Sen. Edward Kennedy (D-Mass.), chairmen of respective House and Senate committees addressing education, had taken a keen interest in kickbacks and predatory lending practices in the student loan industry. It was precisely the kind of oversight that had been rare under Republican rule in Congress, and the lending companies it focused on were big spenders on K Street and in Congress. In fact, the top five in the industry had spent more than $19.3 million on lobbying the year before, and had donated generously to candidates in both parties (though skewing toward the GOP). With Republicans generally sympathetic to private student lenders, and with a Republican in the White House, the prospect of cutting the industry’s generous government subsidies would have seemed remote at best. Yet, earlier this month, both houses of Congress overwhelmingly passed legislation that would do just that, whacking about $20 billion in subsidies to the industry. “Senator Kennedy and his staff and Representative Miller and his staff were very skilled at using their investigations of the lending industry to propel the legislation they were passing,” says Nick Allard, co-chairman of Patton Boggs’ public policy practice. “Their investigations really mowed down any potential opposition.” Sallie Mae is one of his firm’s registered clients. As much as the end result in the student loan fight, how the legislation got passed has captured the interest of K Street. Many see it as a case study in how a Democratic Congress — loaded with senior legislators and with 12 years of pent-up concerns — can use oversight to drive policy and knock even an influential industry back on its heels. Reid Stuntz, who spent 10 years as chief counsel to veteran investigator Rep. John Dingell (D-Mich.) before joining Hogan & Hartson earlier this year, even made up a slide presentation documenting the process for a talk he plans to make to law school students. PRIVATE PLANE; PUBLIC OUTRAGE Trouble was already brewing in the student loan industry when Kennedy and Miller took it up, with media accounts and a New York state investigation raising concerns about cozy relations between big lenders and universities. As the Senate and House committees publicly aired mounting evidence that loan industry leaders were paying colleges and financial administrators to push their products, some executives were suspended or quit, and committee press releases took pot shots at the generous dimensions of their golden parachutes. The Department of Education was dragged in, and the Senate Banking and Finance committees joined in too, taking up the issue of debt underwriting and other related matters. The inspector general of the Education Department launched his own investigation following a committee request.
Credit History: A Timeline for the Student Loan Investigation
March 2007: New York State AG finds lenders swap gifts for “preferred” status.
Late March: Sen. Kennedy, Rep. Miller ask lenders about “questionable incentives.”
April: Rep. Miller requests action from Dept. of Ed.’s inspector general.
May 2: FTC is asked to investigate “deceptive” student loan marketing.
June 7: Senate Finance Committee begins review of college loan underwriting.
June 12: Rep. Miller formally introduces the College Cost Reduction Act.
June 14: Senate committee releases report critical of student loan practices.
Sept. 6: White House announces it will sign bill slashing lender support.
Sept. 7: Big majorities in Congress vote to strip industry of $20 billion in govt. subsidies.

Legislation moved along on a parallel track. On Sept. 7, the House and Senate overwhelmingly approved the College Cost Reduction and Access Act, stripping lender subsidies to fund direct grants, interest rate cuts, and loan forgiveness. The Bush administration, despite receiving a considerable collateral drubbing during the investigation for its perceived inattentiveness, agreed to sign it into law. (The Education Committee’s investigation isn’t over, a committee spokesperson said last week. ) K STREET TAKES NOTICE Quantifying the extent to which the uptick in oversight has changed Congress is nearly impossible. While Democrats have held more hearings than their Republican predecessors, most observers don’t see quantitative measures of oversight as very informative. “There are historically some examples where subpoenas were used sort of recklessly,” says Danielle Brian, executive director of the nonpartisan Project on Government Oversight, adding that simply scheduling a hearing doesn’t mean much. But while there were plenty of Republican legislators in the last Congress who had the taste for oversight work — Brian recalls Senate Republicans, chief among them Charles Grassley (R-Iowa), as being particularly strong — she says there’s been a marked increase in the intensity of oversight being done. “You know it when you see it,” she says, channeling Justice Potter Stewart on a very different subject. Even before last year’s election, the Democrats’ oversight war horses like Dingell and Rep. Henry Waxman (D-Calif.) were talking up their intent to look into everything from Vice President Dick Cheney’s secretive energy task force to changes in Medicare. And during the last eight months, several more issues have been added to the oversight list: Chinese imports and food safety are likely to draw scrutiny, and Waxman’s staff has spent years looking into Halliburton (Cheney’s former company) and Iraq War contracting. More recently, several dozen Fortune 500 companies have been anxiously trying to decide how to respond to “voluntary” questionnaires about their tax accounting from the Senate’s Permanent Subcommittee on Investigations. “The things that are going to be most high-profile are potential criminal behavior by executive branch or corporate officials,” says Rich Gold, who heads Holland & Knight’s public policy practice. LAWYERS, NOT LOBBYISTS But it doesn’t require a full-blown scandal to convince clients that they don’t want to walk into a committee hearing alone. Firms with “O&I” practices say they all saw significant revenue gains at midyear, and competition for oversight-trained attorneys coming off Capitol Hill has been stiff since before the election, says Gerry Sikorski, a former Minnesota congressman who served five terms with Dingell on Energy and Commerce and now heads Holland & Knight’s government section. The gains in O&I work will likely be confined to law firms with lobbying operations for several reasons, foremost among them that attorney-client privilege is often desirable for clients expecting a Hill grilling. “We have our white-collar criminal defense, our former U.S. attorneys, former Hill, strategic communications people all put together,” Sikorski says. “Quite frankly, most clients don’t need a SWAT team approach, but it’s often a factor in the hiring decision.” The legal skill set required for the work is a mixture of criminal defense, politics, legislation, PR, and, not infrequently, investor relations. Combativeness is rarely a good idea, as Congress may ask questions on any subject and witnesses have little choice except to answer or invoke their Fifth Amendment rights against self-incrimination. And by the time of an actual hearing, “the lawyer is essentially a potted plant,” says Sikorski, who puts the emphasis on witness preparation work. Estimating the overall windfall to K Street from the increased oversight is difficult. The work is typically billed by the hour and isn’t classified as revenue under the Lobbying Disclosure Act. It is also sporadic, lasting only as long as a committee’s interest does. Many staffers who have moved downtown expect those investigative bouts to become more regular if Democratic majorities hold. “It can take a little time to get your sea legs on this,” says Akin Gump Strauss Hauer & Feld’s Steve Ross, who spent a decade as chief legal adviser to the House before the Republican takeover in 1994. “You’re seeing the recruitment of staff, the training of staff, members getting more experienced in doing this.”

Jeff Horwitz can be contacted at [email protected].

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