Washington President Barack Obama on Friday renewed his call for the government to stop backing private loans to college students and replace them with direct government loans to young people, a challenge to a decades-old program with strong congressional support.
Obama’s plan to eliminate the Federal Family Education Loan program could save $48 billion for taxpayers over the next decade, but critics warn it could turn the Education Department into a national bank. Lenders and some college officials oppose the proposal, which Obama backed as a U.S. senator and pushed during the presidential campaign.
“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.
He was joined by Stephanie Stevenson of Baltimore, a University of Maryland student, and her mother, Yvonne Thomas.
Under the current system, students at some colleges borrow directly from the government, while others get loans from banks, nonprofits or state agencies who 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 acknowledged that the proposal was sure to find critics, given the financial stakes. He warned banks and lenders were “gearing up for battle. So am I.”
Republicans are concerned about the costs 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.”
Higher education groups are divided, although a petition against the plan drew signatures from college loan officers around the country. Universities welcome more money for student aid, but about two-thirds of colleges use the subsidized lending program and some want to keep the program.