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Obama touts plan to change college loan system

(Agencies)
Updated: 2009-04-25 11:41

WASHINGTON – US President Barack Obama on Friday renewed his call for the government to stop backing private loans to college students and replace them with direct financial aid to young people.

US President Barack Obama speaks about higher education in the Diplomatic Room at the White House while next to University of Maryland student Stephanie Stevenson, April 24, 2009. [Agencies]

Obama said the surest test for success in the challenging economy is a college degree or other training, yet access to higher education continues to shrink as costs rise. To reverse that, the president repeated his campaign proposal that would eliminate the Federal Family Education Loan program that costs taxpayers $15 million a day.

"In a paradox of American life, at the very moment it's never been more important to have a quality higher education, the cost of that kind of education has never been higher. ... Yet, 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 at the White House.

The administration has pushed for federal financial aid to go directly to students, not to banks that lend money to students. Obama said he wants to eliminate the "middle men" lenders that he says add inefficiency to the system — "that's a premium we cannot afford, not when we could be reinvesting that same money in our students, in our economy and in our country."

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Obama wants to end the decades-old, dual system the federal government uses to advance loans to students to pay for college. Under that system, students at some colleges borrow directly from the government, while others get loans from banks, nonprofits or state agencies that in turn receive subsidies from Washington.

The president's proposal would switch the federal student loan system entirely to direct lending from the government.

Obama has claimed that the change would save at least $48 billion over the next 10 years — money that could be funneled to student aid. But Republicans are concerned about the costs of that and even some Democratic lawmakers oppose the switch.

Sen. Lamar Alexander, chairman of the Senate Republican Conference, said ending a successful lending program and giving more power to Washington and Education Secretary Arne Duncan would not help students.

"Arne Duncan, I think, is the president's best appointee. But as secretary of education, he should focus on paying teachers more for teaching well and creating more charter schools — that's his agenda," said Alexander, a former education secretary. "I don't think Secretary Duncan came to Washington to be named Banker of the Year. The Department of Education should not be a $500 billion national bank."

The president acknowledged that proposal's critics.

"In the end, this is not about growing the size of government or relying on the free market, because it's 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 eight and a half million more students."

Obama also noted the plan would be tough to pass.

"The banks and the lenders who have reaped a windfall from these subsidies have mobilized an army of lobbyists to try to keep things the way they are. They are gearing up for battle. So am I," Obama said.

Higher education groups are divided. They welcome more money for student aid, but about two-thirds of colleges use the subsidized lending program and some want to keep the program.

Lenders are also fiercely lobbying against the proposal, which would end a historically lucrative business.

"The president's proposal to eliminate the Federal Family Education Loan Program will do more harm than good," said Kevin Bruns, executive director of America's Student Loan Providers. "The proposal does nothing to make college more affordable for the vast majority of students who require loans to pay for college."