BRIAN LAMB, HOST: Steven Waldman, who is Michael Waldman and what role did he play in the book "The Bill"?
STEVEN WALDMAN, AUTHOR, "THE BILL: HOW THE ADVENTURES OF CLINTON'S NATIONAL SERVICE BILL REVEAL WHAT IS CORRUPT, COMIC, CYNICAL -- AND NOBLE -- ABOUT WASHINGTON": Michael Waldman is my brother and he played no role in the book "The Bill." But the reason I say that and the reason I had even mentioned that in the acknowledgements is, Mike, who's two and a half years older than I am, works in the White House, in the Communications Department. He's a special assistant to the president for policy coordination. And when I was first starting out on this project, which grew out of a Newsweek article, it didn't seem like it would be a big problem because Mike was just joining the campaign. It was an enormous campaign. We didn't even know if Clinton would win. But Clinton won; Mike did well during the transition and, lo and behold, he was given a very important White House staff job.
And since I had already begun this project, we had a dilemma, which was whether to proceed and how to proceed if I did. And we basically decided that he would ask to recuse himself from all matters internally involving national service and I would not interview him or talk to him about national service for the book. And he had plenty of other issues he could work on anyway -- we pretty much kept to that firewall. And, in fact, he's reading the book right now for the first time. One of the people whose reaction I'm most curious about is him. He says he's about halfway through it.
LAMB: What's the premise of the book?
WALDMAN: What I tried to do was to take -- the best model that I can think of is the movie from the '60s called "The Fantastic Voyage." I don't know if you remember that, but it was about a group of scientists who shrink themselves down to microscopic size and journey in a vehicle inside the human body. And they get attacked by white blood cells and learn all about the organs and the system.
The idea of this was to take one -- not even a bill, really -- but one idea and trace it from idea to law at every stage along the way. A lot of articles and books tend to look at things sort of globally, either looking at the administration as a whole or Congress as a whole and how it works. And we decided that we wanted -- that we would get a better insight, or maybe a different insight, about Clinton and the way Congress works by taking one idea and following it straight through all the different parts of the process.
And the reason I chose national service is, in part, because it did have an idealistic strain to it. So in a way, the thesis question of the book is: What happens when an idea that is really intended to bring out the best in people -- service -- meets a Washington political culture that often seems to bring out the worst in people. And that's the dramatic tension, hopefully.
LAMB: How long was the time of the book itself? I mean, not when you wrote it, but from what date to what date until the actual bill was passed?
WALDMAN: It begins in the 1992 campaign, or actually, even before the campaign officially began -- late 1991, the summer of 1991, when Clinton himself was formulating what became the campaign promise. And most of the book ends with the bill signing, which is in September, 1993. I have one scene at the kickoff of the AmeriCorps program, which is 1994 -- September of 1994. But the bulk of the book is the period -- basically 1993 -- the period from when, after Clinton's election, they put together their legislative proposal and then tracked it through Congress.
LAMB: What's the AmeriCorps?
WALDMAN: AmeriCorps is the result of the national service bill -- it's a new service program that allows young people to serve in their communities and, in exchange, they earn a scholarship for college. There are about -- in the first year, there will be about 20,000 AmeriCorps volunteers.
LAMB: Explain how that works. That first year being what year?
WALDMAN: Right now.
WALDMAN: It began in the fall of 1994. It actually operates on an academic year, because they found that a lot of people -- young people -- are looking towards what to do in September, not in January, because they were out of school in the spring. So the first real batch started around the summer and September, and it's kind of rolling out gradually. And it is not one of the things that we deal with in the book -- how you set up a program from scratch. This was Clinton's, really, one chance to work on a blank slate and do his reinventing government ideas and setting up a program from scratch.
It is not one big program, like the Peace Corps was, where everyone is chosen federally. It's actually very decentralized. The federal government gives out a lot of the money to state entities, state commissions, and those commissions then give grants to local programs, often sort of well-known non-profit programs -- groups like the Red Cross or Habitat for Humanity, which is the group that Jimmy Carter is associated with. And those groups, in turn, choose the AmeriCorps volunteers. So it's a very decentralized process.
And, in fact, one of the things that they've been having to wrestle with lately is, how do you take a program that is so decentralized, with people scattered all over the country doing hundreds of different types of service, and make them feel like they're part of one big national corps?
LAMB: Before we go back to the beginning of all this, go to the end again and try to paint a profile -- because this legislation has been passed -- of what has changed and give us the way a young person gets involved and what do they get?
WALDMAN: Most likely, a young person will have heard about it from seeing a newspaper article or maybe hearing about it on college campus.
LAMB: What age?
WALDMAN: Right now, it's actually open to anyone from, I think, about kindergarten up to age 100. I mean, it's basically -- they ended up opening the whole thing. But mostly, we're talking about people in the 17 to 25-year-old range.
LAMB: Do they have to hear about this just word of mouth?
WALDMAN: Yeah. You know, there's, increasingly, advertising being done on college campuses. AmeriCorps and the Corporation for National Service, which is the new federal entity that was created to run this thing, have done some advertising.
LAMB: How much money is there in it for 1995? Federal money.
WALDMAN: Three hundred million dollars for AmeriCorps.
LAMB: And there is an organization called the National ...
WALDMAN: It's called the Corporation for National and Community Service.
LAMB: And it's based in Washington?
LAMB: How many people work there?
WALDMAN: The short answer to that is about 400 people, but not all of them work in Washington, and it's sort of an interesting tale that maybe we can talk about later about who those 400 are, because that gets at the whole question of reinventing government and how you set up a new federal bureaucracy without it becoming a bureaucracy.
LAMB: Is there a building here where they're located now, the National Corporation?
WALDMAN: Yeah. It's on Vermont Avenue. It's ...
LAMB: Who runs it?
WALDMAN: It's the building that used to be the ACTION programs, which were set up in the early '60s, and included VISTA and the foster grandparents programs; a lot of other programs that were set up under Kennedy.
LAMB: What was VISTA?
WALDMAN: VISTA stands for Volunteers and Service for America, I think, and it was set up under Kennedy and Johnson. And it was, in a way, their attempt to being a domestic Peace Corps, their attempt at a national service.
LAMB: Go back again. We have $300 million set aside the first year. We have an operation, corporation, government-owned, run downtown, 400 people.
LAMB: Who runs it?
WALDMAN: There is a board of directors -- they've set it up as a government corporation, so there's an outside board of directors which have been appointed by the president, and there are operating officers. The president of the corporation is a man named Eli Segal, who's a central character in the book, because he was also the man who was appointed by President Clinton to get the legislation through.
LAMB: He worked where?
WALDMAN: He worked in the White House during the period when I was writing about him. He was an assistant to the President and director of what was called the Office of National Service. He's an old friend of President Clinton from the late '60s, from anti-Vietnam War protesting days.
LAMB: So he shepherded the legislation through for the White House?
LAMB: There's been a corporation set up and he's now president of it?
LAMB: Is it a full-time job?
WALDMAN: Yes. Very much. And I think more full-time than he even imagined. It's really an enormous project to set up a federal program from scratch, and they're on a very short time schedule. They wanted to get 20,000 young people in the field within the first year of operation. And just by comparison, the Peace Corps, at its peak, had less than 20,000 people.
LAMB: Go back again and let's see if we can get a profile of a younger person around the country, and they hear about this word of mouth. What do they do?
WALDMAN: One thing they can do is call a phone number, which I list in the book, which is a central kind of AmeriCorps clearinghouse, and you say, "I'm interested in doing this." Then they will put you in touch with a local program that has become an AmeriCorps sponsor. So say I call up and they tell me, "Well, there's a Habitat for Humanity program in your area that is bringing on AmeriCorps volunteers." So I call the Habitat for Humanity program and they say, "OK. We're taking applications now for our AmeriCorps team." And they have an application, which can vary from program to program. And the Habitat for Humanity puts together a program; and, in their case, it would probably have something to do with rebuilding housing in a low-income area.
Assume I'm accepted into that and, in this case, we'd be talking about -- if I were applying now -- it would probably be for some time in 1995. I go to work -- it's a full-time job. It's stipended, and the stipend is something like $8,000 a year. It's about the equivalent of a minimum-wage job. So I earn that stipend working very arduous hours, say, rebuilding low-income housing in a poor area.
At the end of my experience, which can be either one year or two years, I get a $4,800-$4,825 scholarship per year. So if I do two years, I get almost $10,000 in scholarship. Now I can -- if I've already gone to college -- I can use that money to retire my student loan debt, if I have any. If I'm 17 and I haven't yet gone to college, or even if I don't intend to go to college, I can take that money and apply it to a job training program or, if I'm about to go to college, I can use that as the down payment on my tuition. So they've set it up in a way that you can either do it after college, when you have a lot of student-aid debt, or before college, when you can just use it to help pay your tuition.
LAMB: So, I may have missed this, but you get $8,000 stipend?
WALDMAN: Right, as you're doing it, a paycheck.
LAMB: You get a paycheck, and then you get the other $4,800 ...
WALDMAN: At the end.
LAMB: Yeah. At the end. If I'm adding this up right, $8,000 times 20,000 would be $160 million.
WALDMAN: That's probably about right. I forgot the exact numbers, but the stipend is an expensive part of the program.
LAMB: You mean, the money beyond that.
WALDMAN: The salary.
LAMB: Well -- but what I'm getting at is, though, that leaves another $140 million on a given year, and I assume that money goes -- what? -- to the education?
WALDMAN: Some of the main costs of the program are the stipend, the scholarship, which is what you get at the end, and third -- and maybe the most controversial part of it, and this may be what you're getting at -- is the cost of actually setting up these programs. It costs something to have people supervise the volunteers, to set up the infrastructure, to have the supplies to build the low-income housing, whatever. And the question of what the best way of spending that money is, was one of the more interesting debates internally as the bill was going through Congress.
LAMB: Do you have any idea what kind of interest there is so far of your 20,000, basically, young people?
WALDMAN: There's been --really, the low level of advertising for this -- there's been -- last time I checked -- there were at least 100,000 people who called into the national 1-800 number for this, and that was with a minimum of advertising. So they have an abundance of applicants for these jobs.
LAMB: How long is this program based on what the law says?
WALDMAN: Well, it's a very interesting and important question now, because as the law is written, the program expires in 1996. So the Republican Congress will get to decide whether or not this program gets reauthorized.
LAMB: How many years was it authorized for?
LAMB: And the money starts at $300 million the first year, and then what about the next two years?
WALDMAN: Five hundred million dollars and then $700 million.
LAMB: Now the $4,800 plus that goes toward college education has something to do with veterans.
WALDMAN: Yeah. I was smiling when I was trying to remember the actual dollar figure because if you're setting up a new program, you would -- you wouldn't think you would would come up with an odd number like $4,825 as your scholarship, particularly if you're wanting this to kind of capture people's imagination. But the scholarship is a wonderful example of how a law like this really gets made and how interest-group politics affects everything.
Clinton actually, during the campaign -- I'll walk through the whole evolution of this scholarship, if you don't mind, because it's a very telling example. Clinton had actually proposed the scholarship during the campaign that was $10,000 per year, so $20,000 if you did it for two years. Then he gets elected. He has a budget crisis. He learns that he can't do it at the same level that he wanted to. And what's more, he starts getting criticism from interest groups and politicians on the left and right who say, "You emphasized -- during the campaign -- you emphasized college students too much. We want this to be open to younger people and people who aren't even going to go to college." So people who might remember the campaign promise will associate it with college. And yet when you asked me before who can go into this, it doesn't have to be someone that's from college.
So Clinton said, "Well, OK. Let's open the program up to people who aren't necessarily even going to college. But," he said, "if we're going to open this to 17-year-olds, we can't give them a $10,000 scholarship per year. That's too much money." So he suggested, "Well, we'll give $10,000 to the college graduate and $5,000 to the person who's not going to college." It had a certain logic to it on paper. But that set off a whole 'nother fight. All sorts of groups that were community service groups said, "That sends a horrible message. That sends a message that society values college graduates more than those who don't go to college." And Clinton's reaction at first was, "Well, yeah. That's OK. That's a message I don't mind sending, because we want people to go to college." But in the end, he was convinced that, politically, it would've been a big mistake. So he says, "OK. We'll have one benefit," and they cut it down to $6,500 as the one benefit.
So it looks like things are going along fine there at $6,500. So then two days before they're going to unveil the legislation -- April 28th, 1993 -- the veterans groups explode with anger. And they make the argument that $6,500 a year in scholarship is more than veterans get under the GI Bill and they started issuing press releases saying, "This is a slap in the face of GIs." You know, "You want to give some runny-nosed Harvard graduate more money to rake leaves than someone who defends their country in Desert Storm." And the question of whether or not they were right or not revolves around a very technical debate about how you define the money.
But in any event, with the help of Sonny Montgomery -- who's a veteran Democrat, the chairman of the Veterans Affairs Committee in the House and tremendously respected among veterans -- Montgomery helped broker a deal with Clinton personally involved. Clinton tracked him down at a restaurant in Virginia to make the final deal. They say, "OK. We'll lower the scholarship level from $6,500 down to $5,000 and that'll solve the problems." So they lower it again to $5,000. And they think that they have succeeded in taking care of every possible problem.
Then the bill goes through Congress, through the different legislative committees. And when it gets to the floor of the House, the veterans groups and their legislative allies sense another opportunity to take another hit at the program. So they propose that the national service benefit be 85 percent of --or 80 percent, I think, was the original proposal -- f whatever the veterans' benefit is. So that would knock the scholarship, under the original conception, down to $3,000-something. So we've gone from $10,000 down to $3,000 as each different interest group has weighed in.
In the end, Montgomery again helped broker a compromise with President Clinton, again getting directly involved, along with George Stephanopoulos and Bruce Lindsey and top White House people. And they come up with a compromise that puts the scholarship level at $4,825.
LAMB: Steve Waldman, where are you from?
WALDMAN: Long Island. Great Neck, New York.
LAMB: How long did you live there?
WALDMAN: Until I went to college, and so I was 17.
LAMB: Where'd you go to college?
WALDMAN: Columbia University in New York.
LAMB: Why'd you pick Columbia?
WALDMAN: My brother went there, and so I had visited him there a number of times. I thought it was ...
WALDMAN: Michael, yes, who we've started out talking about. It seemed like an awfully cool place to a 17-year-old. It was right in the middle of Manhattan, just very urban and gritty, very political, lots of -- you couldn't walk down the campus without getting confronted by someone who wanted you to sign a petition on something or other. I was interested in journalism back then, and it had a good school newspaper, the Columbia Daily Spectator. I figured I probably would want to work for them. And it just seemed to generally be a good school in terms of my interests -- politics.
LAMB: What year did you graduate?
LAMB: In what subject?
WALDMAN: I majored in political science, although I spent a lot of my time on the school newspaper.
LAMB: So that was 10 years ago when you graduated?
LAMB: Where did you go after school?
WALDMAN: The first thing I did after school was -- I wanted very much to cover the Democratic Convention in 1984, but I didn't have a job that would allow me to do that. So I ...
LAMB: In San Francisco.
WALDMAN: Yeah. Right, in San Francisco. And I set up a sort of impromptu one-person news service where I contacted newspapers in Wisconsin, as it turns out. It's sort of a long story as to why Wisconsin, but I ended up hooking up with three or four newspapers -- small newspapers in Wisconsin and covered the convention for them -- in other words, finding out what the delegate from La Crosse was doing in San Francisco. It was La Crosse, Wisconsin, Eau Claire, Racine and Appleton. And so I went and covered the Democratic Convention.
After that, I went to a place called States News Service, which is another sort of little Washington institution that people around here know about, but outside, may not. It's a news service that was created in the '70s that provides local coverage of Washington issues. So my client newspapers were New York Newsday and The New York Daily News. And my job was to take big national issues and look for the local angle. So if there was a big housing appropriations bill, my job was to find the grant for the Bronx.
LAMB: What kind of money are you making at this point?
WALDMAN: The salary there then, I think, was $1,500 -- I'm sorry -- $15,000.
LAMB: A year?
LAMB: Were you still single?
WALDMAN: Yes. Yes. I think it's virtually a requirement. I was one of the -- perhaps the only person in States News Service history to take a job that required a pay cut afterwards. I went to work at The Washington Monthly after States News Service. And the salary when I joined The Monthly was $8,400 a year.
LAMB: Now in this book, your boss at The Monthly, Charlie Peters, is quoted several times because of his experience with the Peace Corps back in the early 1960s. How come?
WALDMAN: He was the director of evaluation for the Peace Corps. And it was a very interesting job the way he did it, because he didn't do it -- he structured it differently from a normal bureaucratic office. He actually hired a lot of journalists to go out in the field and report back independently outside of the normal chain of command. So he has just an enormous wealth of knowledge and wisdom about how a service program can be made to work and what are the tendencies of those who fail, why they fail. There aren't very many people who have that kind of insight.
LAMB: What was your discussions with him about his experience with the Peace Corps. Was he upbeat on the possibility during the process that a national service corps could be created?
WALDMAN: Yes, he was. He had seen plenty of bad programs in the Peace Corps, but he had also seen plenty of very good programs, and he has been an advocate of national service himself in his magazine, The Washington Monthly.
LAMB: How long were you at The Monthly?
WALDMAN: Two years.
LAMB: And then what?
WALDMAN: Then I went to Newsweek.
LAMB: What year is this?
WALDMAN: Late 1987.
LAMB: How did you get hired there?
WALDMAN: Fortunately, the Washington bureau chief of Newsweek, Evan Thomas, who's still the Washington bureau chief, is a subscriber to The Washington Monthly. And so he knew my work from reading articles in the magazine. And the magazine was starting to go through a change during which they wanted to have more analytical journalism and they were starting to look for people who didn't just have a newspaper background but also had magazine writing experience. There aren't that many training grounds for that type of journalism. The Monthly is one of the few ones, really. And so that gave me a leg up to get in the door.
LAMB: So that was '87. We're now up to what year -- you said '91 -- when this process started for the book?
WALDMAN: Right, although I didn't start working on it for Newsweek until really late '92, early '93.
LAMB: Have you published any of what you've written in the book in Newsweek?
WALDMAN: Yeah. There was a was a big article in Newsweek in September of 1993 -- which was right after the bill was signed. And that is part of the model for the way this project ended up working. And Newsweek has done something over the last three or four presidential cycles with its presidential coverage which was partially the model for this project, which is, they had a group of reporters covering the campaign on a week-to-week basis. And there're people like Howard Fineman and Eleanor Clift and Joe Klein who your viewers might recognize.
Then they have a separate second team of reporters that work full time doing nothing but covering the campaign to write just one article about it. And the idea is that the campaign agrees to give that special team of reporters special access to the inner workings of the campaign on the condition that that reporting is not used until after the election is over so that whatever damaging material they find out by being inside the room won't affect the results of the election.
And, really, the way that this project began was an interest by Newsweek in seeing if we could apply the same model toward a legislative initiative. Journalists are justifiably criticized all the time for spending too much time on covering politics and not enough on policy, so we thought this would be a good way of doing it interestingly.
So I went to a lot of the people who I thought would be important players in this and tried to negotiate similar sorts of arrangements where I would be allowed to sit in on private meetings, strategy sessions, planning meetings, on the condition that I wouldn't write about it until after the bill was passed. And it's a little bit different from the campaign because there are about 50 different people I tried to do this arrangement with -- it was very diffuse. Some people didn't want to and others did. But part of the reason why I was able to have so much behind-the-scenes material in this book was that I was actually allowed to sit in on strategy meetings.
LAMB: Was there ever a case when somebody came up to you after a meeting and said to you, "What you heard in this room is off the record"?
WALDMAN: No. There were times when people would say -- before the meeting began, they would say -- "This meeting we would like to have off the record."
LAMB: But let you sit in it anyway?
WALDMAN: Yes. Mostly, though, the reason that part was so labor intensive is that if I was covering a meeting, say, of the college associations -- the associations in Washington representing universities from around the country -- there might be representatives of 20 different groups at this meeting, which meant had to get permission from each one of those 20 groups. And if one group said no, they didn't want me in the room, I was out. Those were the terms I always worked under. So I had to spend a lot of time just meeting and talking with anyone and everyone who might be a player in the drama.
LAMB: Let me read what you said in your book in the final chapter, Getting Things Done, almost the final page: "The adventures of national service and student aid reform illustrated the pervasive corruption of the political system. Millions of dollars were spent on phony bills, misleading advertising, revolving-door lobbyists and artificial grass-roots effort. 'What's in it for us' has become the operating philosophy of nearly every group in Washington."
Now I'm going to read it again, because that seems to me to be a rather strong statement. I want to make sure the audience heard it all. "The adventures of national service and student aid reform illustrated the pervasive corruption of the political system. Millions of dollars were spent on phony polls, misleading advertising, revolving-door lobbyists and artificial grass-roots effort. 'What's in it for us' has become the operating philosophy of nearly every group in Washington."
WALDMAN: Yes. This was the most discouraging part of following this bill through. Let me back up just for one second to say that the campaign promise -- Clinton's campaign promise -- really had two parts to it. He said, "Everyone should be able to have the money to go to college. And you should be able to get a loan and pay it back one of two ways." One was by doing community service work in your communities and getting a scholarship. Two was by being able to pay back your loans as a percentage of income over time.
Basically, what he's talking about there is restructuring the federal college loan program. And half the book is about that part of the promise, because really, that promise has two very different elements to it, and I follow both elements. And the reason I mention that now is that a lot of the things that I mention there in terms of phony polls and misleading advertising, expensive, revolving-door lobbyists, were brought into play in the battle over student aid reform. And the reason is that you had an existing student aid industry that had sprung up over the last 20 years that, basically, thrived off giving out student loans. Clinton's approach would really radically change the existing situation. And so the people and players who had a stake in the existing program really had a lot to lose. And so they hired expensive lobbyists, often former Democratic office-holders and people in Democratic administrations on the theory that maybe former Democrats would have better luck lobbying.
LAMB: Can you name one?
WALDMAN: Harry McPherson was a general counsel to Lyndon Johnson and he worked for a group called Sallie Mae.
LAMB: This is the same law firm that George Mitchell just affiliated with?
WALDMAN: I haven't kept track of that, to tell you the truth, but all of the people who were hired as lobbyists, and there may be a dozen, were people with Democratic connections. Patton, Boggs & Blow -- the firm that Ron Brown came from, the Secretary of Commerce -- did lobbying.
LAMB: And Tommy Boggs, the Boggs in that group, is the son of the former majority leader, Hale Boggs.
WALDMAN: Right. So this is the way it worked. I mean, you tried to always hire people who you thought had the best Democratic connections. I said somewhere in the book that the roster of lobbyists hired by the student aid industry looked like a Democratic Party fund-raising roster -- it was just, you know, one by one, very sort of influential, prominent Democrats. And the student aid industry has become very complicated. There are a lot of different players, and sometimes they were working across purposes; but the gist of it was that they wanted to have a system that was based in the private sector in which the banks would give out the loans.
Clinton was proposing a program in which the government would give out the money directly to schools, cutting out the banks as middlemen. Go back to the sentence that you read, "phony polls." One of the groups commissioned a poll as a way of getting news attention for their client that was very slippery. If you look carefully at how the questions were phrased, how the numbers were added up, it was basically a poll -- one of those classic polls designed to prove whatever you wanted to prove. Very few of the people who were asked to comment on their opinion had even heard of the direct lending, and yet, they were able, by crafting the questions in certain ways, to shape their responses.
LAMB: But what happened to the poll? I mean, did the news media take the polling information and publish it?
LAMB: Without questioning where it came from?
WALDMAN: Pretty much. Not so much print, but TV--local TV. And what they did -- excuse me -- what they did was target the press release about this poll toward key congressional districts, the local TV stations in key congressional districts where they felt like they wanted to put pressure on a particular member of Congress. And so the local TV station would take this press release, they would use it as the news hook for a story, they would interview this fellow from the student aid industry, who was the one who commissioned the poll, as an expert on it. And they'd build the story around it. There was some variety in the quality of it. Some local TV stations had some opposing views on, but some didn't at all. Some worked straight from the press release; did not question the underlying numbers.
LAMB: You mention Sallie Mae and the banks. First of all, how did you get through college? Who paid for your college?
WALDMAN: I was lucky enough that most of the bills were savings, really, that my grandparents had put away for me when I was born.
LAMB: So you never had to go for a student...
WALDMAN: Not a guaranteed loan, no.
LAMB: So your interest in this isn't tied to your own situation.
LAMB: Did you ever, by the way, want to do the military service or national service?
WALDMAN: Well, you know, I really wish that this had been available when I was in college. VISTA was thought to have been non-existent. I didn't know anyone who went to VISTA and we hadn't even heard about it, although it did still exist in a very small form. I had one or two friends who went into the Peace Corps, but the Peace Corps didn't interest me that much. I didn't want to go to another country. And so I didn't. And in terms of military service, I didn't feel a great urge to go into the military. I mean, I guess part of it was just no one in my immediate family had served in the military and so it wasn't part of the culture.
LAMB: Back to the banks and Sallie Mae. Did the banks make a lot of money off of student loans?
WALDMAN: It's high in terms of percentage of profit; it's a very successful line of business. In terms of overall gross sales, it's not that large, but it's a very safe, predictable form of profit for them because it's government guaranteed.
LAMB: How does it work? I'm a college student. I'm 17 years old. I need $20,000 to go to school this year. How do I get that money?
WALDMAN: Under the old system?
LAMB: Under the old system.
WALDMAN: Basically, you go to the bank or any bank in your area and you apply to the bank for the loan.
LAMB: How much can I get, by the way?
WALDMAN: It varies by what year you are in college, but I think it's a maximum of about $5,000. So, like, when you're a senior, you can get a $5,000 loan. And they have different gradations of interest subsidies that go along with it, also depending on where you are in the system.
The bank gives the loan and the it's called a guaranteed student loan. Who provides the guarantee? The government provides the guarantee. And without going through all the different intermediaries in this, because it would take the whole show, there's a state agency that guarantees the banks; there is a secondary market that helps the banks unload the loans if they want to; there's a federal secondary market that can help banks if they don't want to hold onto the loan for the whole life of it; and then there's the federal department -- US Department of Education -- which ultimately pays off the loan if the student defaults.
So the point of this is that under the old system, the good news was that the banks were operating on the grass-roots level. They were the ones who were giving out the loans. It's something they know how to do. You didn't need a government bureaucracy doing it. And pretty much, people got their loans. The bad news was that you had this very bureaucratic and inefficient system in which the government ended up ultimately guaranteeing any or almost all of the loss. So even though it's a private sector-based system, it ends up being hilariously bureaucratic and costly to the federal government. And that was one of the things that was very confusing about this whole reform issue, which is that you would think that the private sector-based system would be more efficient than the government-based system, but in this case, it was not at all clear that that would be true.
LAMB: What's Sallie Mae?
WALDMAN: Sallie Mae stands for Student Loan Marketing Association. It was set up by Congress as a federally charted charted corporation, like Fannie Mae, the group that insures mortgages for people.
LAMB: What year? Do you know?
LAMB: So it's 22 years old?
WALDMAN: Right. And the idea in setting this up was to try to help sort of lubricate the market for student loans, make it easier for banks to provide student loans.
LAMB: Why did the banks need it?
WALDMAN: Before the government program was set up, the banks viewed student loans as a very uncomfortable risk. A student comes in; he has no earning history, particularly, except, you know, maybe working at the ice cream shop, but nothing that would tell them what their earnings are going to be like in the future; no credit history. It's going to be at least four years before they start earning any money at all. So it's not an ideal loan to give out. So they were making a pretty, you know, sound, pragmatic decision not to give loans to students.
So the government came along and said, "Well, what can we do to take away some of the risk so that you will be more likely to give out the loans?" And they did that through various laws, starting in 1965. Every few years, they would add a new provision that took away some of the risk to the banks. And the problem really is that by the time you got to 1993, there had been so many sort of incentives that the government had put in to make it easier for the banks that it ended up being very costly to the federal government. And it ended up being something like, in order to generate $15 billion worth of loans, the federal government was spending about $6 billion in incentives, and that's not a terrific rate of overhead to make an efficient program.
LAMB: The Sallie Mae chief executive officer is a player in your book. What's his name?
WALDMAN: His name is Lawrence Huff. He's the president or CEO of Sallie Mae. And he is one of three of the student aid industry people that I follow through the book.
LAMB: How is his corporation set up that was created by the government?
WALDMAN: It's a very funny beast. It's very unlike what most corporations or government agencies are like. The initial board of directors were appointed by the president -- or, I think a third of them were -- and then some were appointed by Congress. It has a federal charter. And yet, it basically operates like a private company. It has stock shares that are traded on the stock market. The board of directors sets the salary. He earns $1.3 million salary, or $1.3 to $2 million, depending on how you count it. So it's not exactly the salary of a government official. And they have a direct stake in the preservation of the preservation of the current student aid program. A lot of their business was based on buying loans from the banks and, through a very complicated system of financial transactions, making investments off the ones they were holding.
LAMB: How much taxpayer money goes into Sallie Mae?
WALDMAN: There was an initial start-up cost of government money into Sallie Mae, but right now, there's no money that directly goes into Sallie Mae. It's only indirectly in the sense that the government puts this money into the student aid program, which sustains this large student aid industry, which ends up sending out these loans, which ends up having the banks sell the loans back to Sallie Mae, which ends up giving Sallie Mae capital to invest so Sallie Mae can make a profit. So it's a very indirect way that they benefit from the federal money.
LAMB: Does the president still appoint some of the members of the board?
WALDMAN: You know, it's a good question. I think he does, but I think the turnover is very sporadic, so I don't know the answer to that.
LAMB: In the middle of your book and the coverage of this bill being passed through, you say that the Sallie Mae stock plummeted.
WALDMAN: Yeah. As word spread early on, early in February of 1993 that the Clinton administration was thinking of going to this pretty radical student aid change, which is known, incidentally, as direct lending, because it would be the government directly lending to schools.
LAMB: But how did it administer it, by the way, if direct lending had passed?
WALDMAN: It's a big question, because you can do it a number of ways, but basically, the government would ...
LAMB: From an operation that was established in Washington, a company-type thing just like Sallie Mae?
WALDMAN: Well, that became one of the issues in the process, because no one had faith that the Department of Education could run such a thing, so they ended up, really ...
LAMB: No one?
WALDMAN: I couldn't find anyone. There probably were people in the Department of Education who did, but even people in the Department of Education did not propose that the Department of Education would run the whole thing. They would say, "You know, in areas where it would be helpful, we can hire banks, and maybe even Sallie Mae, to be a private contractor to help us run it."
But getting back to the previous question, which I'm having...
LAMB: We were talking about Sallie Mae and --What I really want to get to in this is, the stock price fell ...
WALDMAN: Right. I'm sorry.
LAMB: And then their involvement in the process of either helping or hurting this bill.
WALDMAN: Right. The stock price fell, and Lawrence Huff...
LAMB: It fell quite a lot.
WALDMAN: It plummeted. When word spread -- around the time that President Clinton was issuing his first budget -- word spread that it included this student loan reform. And it fell from --forget the exact numbers, but it fell from something like in the 70s down into the 40s.
LAMB: I think it was 46 or something, if I remember.
WALDMAN: Yeah. And one day the trading was so dramatic a drop that they had to close the trading desk for the Sallie Mae stock on the New York Stock Exchange.
LAMB: What was the reason?
WALDMAN: Because the sell orders were coming so fast...
LAMB: No. But, I mean, what was your reason that it was falling?
WALDMAN: It was a report in that day that the president's budget would include this student loan reform, and people who knew about the stock knew that that was very bad news for Sallie Mae.
LAMB: What did Sallie Mae do then?
WALDMAN: Well, they sort of kicked into action and decided -- Lawrence Huff being the CEO of this -- they felt he had an obligation to his shareholders who owned the stock to be very aggressive in trying to fight the student aid reform. So they, along with other players in the student aid industry, did a number of different things. One was to hire Washington lobbyists, like the ones I mentioned before, to play sort of an inside Washington lobbying game, which is to say, "Get copies of Sallie Mae's alternative student aid reform to key players in the administration." And perhaps their best asset in this was a man named Gerry Houlton, who was actually one of Clinton's campaign managers in the state of Ohio and was also a Sallie Mae consultant. So Houlton was actually able to give a copy of the Sallie Mae document to Clinton and to Clinton's top aide, Bruce Lindsey, which, in the lobbying business, is about as good as you can get. And he spoke to Clinton personally about ...
LAMB: Is that the bathroom story?
WALDMAN: That's a different one.
LAMB: That's a different one. OK. One thing I can say about the book is that it's full of all kinds of these stories that are hard to track unless you can actually read it. That's why I'm going around the bend here, to get some sense of what's in the book.
WALDMAN: The other thing that they did and which I spend a lot of time in the book, is what we call organized grass-roots lobbying. You know, a lot ...
LAMB: Sallie Mae did this?
WALDMAN: Sallie Mae did this. Others in the book also did it, but there tends to be an impression, when you talk about Washington lobbying, that it is people like Tommy Boggs and Harry McPherson, sort of influential Washingtonians going through the halls of Congress talking to their pals, a member of Congress, or slipping something in a bill. That happens, but I think the more important lobbying phenomenon of the '90s is what is called organized grass-roots lobbying. I mean, when you think of grass-roots lobbying, you may think of sort of Ralph Nader interns in T-shirts banging on doors, but it's actually a situation where large corporations or any interest group will work to try to generate a grass-roots movement in support of their cause. And the banks in particular had an image problem. They knew that if they were coming to oppose the the student loan reform, people would say, "Well, yeah, of course, you're opposing the student loan reform. You're going to lose money. You have a vested interest in this. Why should we believe you?" They were fully aware of that image problem, so one of the things they tried to do is to get people who didn't have an immediate financial stake on the grass-roots level to phone and call congressmen and work to try to get their point of view through.
And the thing that they worked mostly on was getting the local financial aid administrator -- the person at the college who actually sits down with the student and works out the financial aid package -- they went around and they sent Sallie Mae advisers and consultants around and had seminars with the financial aid people to teach them how hard it would be to administer, in their view, this new program and what a nightmare it was going to be for them. And it worked. Those financial aid administrators came to have real concerns about the way this program would work; and they began writing letters, they began calling congressmen. And among other things, it created a real sense of unease among members of Congress about going to this reform.
LAMB: But you also say that there were ads taken out in newspapers to call an 800 number appealing to the student: "Are you afraid you might lose your loan?" -- and then they found themselves patched into the congressman's office.
WALDMAN: Right. This is from another -- it was not Sallie Mae; it was a different student aid group and they set up a group, I think, called Students for Student Loan Reform. And it was set up by one of the local financial aid industry people and it had a very sort of inflammatory ad saying, "This new reform is going to take away your loan. It's going to jeopardize your college education. The IRS is going to be breathing down your neck." And it had a 1 (800) number. And when you called the number to find out more information, they would tell you a little more information and the operator would then say, "Well, would you like to speak to your member of Congress?" And it would directly patch you in to the member of Congress using that telephone patch so there was no extra requirement for you to sit down and write a letter or make another call; you would immediately, if you were in Ohio, be patched into Senator John Glenn or Senator Metzenbaum.
And this came to light because one of the proponents of the student aid reform in Paul Simon's office. Senator Paul Simon found out about it and they tried to make a big deal of it in order to embarrass the student aid industry.
LAMB: We don't have a lot of time; name some of the players in this. If people buy this book, they're going to learn about the process of how this bill became law, but who are some of the names?
WALDMAN: I think some of the more vivid profiles legislatively are Ted Kennedy, who was a key player on both the national service and student loan parts of the bill; Nancy Landon Kassebaum, who was the key opponent of the president's initiative and now is the chair of the Senate Labor Committee; Eli Segal, who was an old friend of the president's and was the one who was asked to guide this through the Congress; Harris Wofford, who was defeated in his Senate race this last election but who was very involved in this and who had helped set up the Peace Corps. He was a senator from Pennsylvania.
LAMB: Was there a point in the process where you -- and by the way, who would you talk to the most? I know you dedicate the book to Joseph, who is ...
WALDMAN: My son.
LAMB: How old is he?
WALDMAN: He's seven months. So I wasn't talking to him very much during the process of researching this.
LAMB: Who did you talk to? I mean, when you come home at night, was your wife interested in this?
WALDMAN: Oh, you mean outside -- not sources, but...
LAMB: Well, what my overall question is: Did you ever have a time where you said, "You just aren't going to believe what I'm learning in this?"
WALDMAN: Well, that was ... yeah. It's interesting, because that was one of the hardest things about this project, because one of the oddest things about this issue was how the most important elements of the legislation, on both student aid reform and on national service, didn't really get debated very publicly and there was very little press coverage. So no one else was writing about this. And consequently, no one else knew about it. And even issues, when I would talk to sources who were right in the middle of it -- about issues that I was most concerned about -- because it wasn't on the front burner of the legislative process, they wouldn't even have particular ideas on it. So to some extent, I was flying blind on what parts of this I felt were most important.
And I think the best example of that -- well, two examples -- one is, we've just spent 20 minutes talking about direct lending. And in a way, direct lending is really less important than the other part of the student loan reform--which is what I mentioned in the beginning--which is this idea of paying your loans off as a percentage of your income. But what happened in our discussion was the same thing that happened in the legislative process because the fight over direct lending involved interest-group clash and conflict. That's where all the attention was. Even though there was this very important change in education policy going on that got no attention.
The other thing was, on the national service side, one of the most important aspects of national service is the mission of national service as a way of bringing people of different incomes and races and backgrounds together in a common mission, the way the World War II draft did, for instance, and the way military service often has done. And this was part of Clinton's vision as he described it. And yet, it was conspicuously absent from the White House's legislative proposal. And this baffled me. In fact, when I pitched the book to the publishers and when I pitched it to my Newsweek editors, I was saying, "This is going to be really interesting because there's going to be very interesting conflict over this issue of race mixing and class mixing in the program and how you go about doing that." And it didn't happen, at least not overtly.
And at first, I was doubting myself. I was like, "Well, maybe I was misinterpreting it in the first place. Maybe that's not an interesting part." But the more I got into it, the more I learned that, "No, in fact, that is an extremely important part of the program and extremely important question in the program's success." But it was so sensitive that the White House didn't want to touch it. They didn't want a public debate on that because they thought it would be a volatile debate that would end up sinking the program. It would be much better off if you had a debate that focused on the positive, non-controversial parts.
LAMB: The president talk to you?
WALDMAN: Yes. I had about a 40-minute interview with him just on national service and student aid reform, so we were able to go in some depth.
LAMB: Didn't allow you to sit in on any meetings?
WALDMAN: No. That was the one place where I did not get access to actually be an eyewitness to actual discussions was in the White House.
LAMB: After this book is finished and you look back on it, who comes out the best, in your opinion?
WALDMAN: You know, I'm a bit baffled about that. I'll give you my opinion in a second, but one thing that has been striking to me is that the people who have read the book have had very different views about who comes out the best. One person I talked to said, "Boy, the hero of the book is clearly Eli Segal because he helps get the bill through." And someone else I talked to thought Eli Segal did not come off very well because he had made so many compromises along the way that he injured the integrity of the program.
In an odd way -- I haven't actually thought about it quite explicit in those terms -- but in an odd way, I think the person who comes out the best in the book is Clinton. And I doubt that everyone who reads the book will have that same impression, but ultimately, it was Clinton who had the idea for the national service. And in the end, the basic tenets of his idea did pass. And he is the one who deserves the credit for raising the issue to the top of his own agenda because there really wasn't a constituency for this. This was just his pet idea. And even internally within the White House, they didn't think it was that important.
So in that sense, I think that, putting aside anything else I might think about Clinton on other issues, I have a certain amount of respect for him in terms of how he approached this one.
LAMB: Our guest has been Steven Waldman, and the name of this book is "The Bill." It's all about national service and student loans and how this piece of legislation made its way through the Congress. Thank you very much.
WALDMAN: Thank you.
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