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Obama Spotlights Student Loan Reform

By Michael A. Fletcher
President Obama today touted his plans to cut banks out of the business of administering federally-guaranteed student loans, saying the choice comes down to supporting special interests or supporting financial aid for millions of students.

Speaking at the White House, Obama said that the change, which has drawn opposition from members of Congress from both parties, would save tens of billions of dollars. That money -- which has been estimated by White House budget makers to be as much as $48 billion over the decade -- would be enough to cover 95 percent of the cost of his plan to increase Pell Grants for students and peg future increases to an index higher than inflation.

"We have a student loan system where we're giving lenders billions of dollars in wasteful subsidies that could be used to make college more affordable for all Americans," Obama said.

Opponents of the plan have predicted that having the federal government handle all federally backed loans would lead to inefficiencies in the program, while increasing the role of government.

Pointing out that increases in the cost of college have outpaced increases median incomes in this country by ten fold in recent decades, Obama said that his administration sees the changes in the loan program as just one part of their effort to make college more affordable. In addition to increasing Pell grants, the administration has expanded tax credits for higher education, and is increasing funding for programs to help colleges retain and graduate students.

"This is not about growing the size of government or relying on the free market -- because it is not a free market when we have a student loan system that's rigged to reward private lenders without any risk," Obama said. "It's about whether we want to give tens of billions of tax dollars to special interests or whether we want to make college more affordable for 8.5 million more students."

By Web Politics Editor  |  April 24, 2009; 3:10 PM ET
Categories:  Education  
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Comments

As I understand it, nothing is being discussed that would affect any PRIVATE loans. What the discussion is about is whether Government subsidized and guaranteed loans will be made through the schools and serviced by federal government contractors or be made through banks and serviced by their contractors. In either case, if the loan is not paid back, the federal government is on the hook for the money. The bank is taking no risk, just collecting the subsidy and interest. Now the banks are saying with the credit crunch that they do not have the money to lend, so are getting government bailout money which they can lend to students, while collecting a government subsidy and interest? They are not putting up any money, nor taking any risk, but still want to 'earn' interest and subsidy?

Obama is right, this is not a student subsidy, but a bank industry subsidy program and they have been sucking at the teat long enough.

Posted by: madala | April 25, 2009 1:01 PM | Report abuse

While I agree we need significant reform, I would not be where I am today without the use of private loans. I have 4 kids and completed medical school after undergrad and grad school. I did not qualify for enough money to be able to support my family during school. Now I am trying to get my first child through college without her having debt. She does not qualify for anything because of my income. So, I am absorbing her college costs with new student loans. I have a lot of student loan debt (six figures). There is no way my children will qualify for pell grants, etc. There needs to be a way for parent's student loan debt and other factors to be considered. Maybe it would be better to regulate the interest rates. That way people in my situation could still secure a college education for their children.

Posted by: midwestdoc | April 24, 2009 8:20 PM | Report abuse

Banks and Lenders like Sallie Mae do not want the federal government to take over federal student loans because then they cannot continue their fraudulent handling of student loans. Citibank Student Loan, Sallie Mae, California Student Aid Commission, Edfund(part of CSAC) have all committed fraud against students. I applaud the President, but I must warn that consumer rights must be restored to all students who take out loans. Also all agencies and lenders who have been handling past student loans should be completely investigated for their illegal practices. Allow Students in Default to repay their loans. If any student took out a loan and the lender committed fraud, cancel that loan and make the lender repay the US Government for the entire loan.

Posted by: beautifulwmn | April 24, 2009 6:52 PM | Report abuse

Brilliant. Thank you, Mr. President.

Posted by: csdiego | April 24, 2009 3:56 PM | Report abuse

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