Obama touts plan to change college loan system

[Frank Booth]

Source: AP

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.

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 each day.

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 -- a move he said could open classrooms to 8.5 million more students.
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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.
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Lenders are also fiercely lobbying against the proposal, which would end a historically lucrative business.

Read more: http://finance.yahoo.com/news/Obama-touts-plan-to-change-apf-15027737.html?sec=topStories&pos=3&asset=&ccode=

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I assume the Blue Dogs will try to block this, and Reid will cave again.

[aquart]

1. And what about those already up to their ears in debt from these loans?

The so-called "low-interest" loans with outrageous points?

[INdemo]

3. To be fair ..a portion of those current loans should be forgiven or the interest rate

should be lowered. The banks could receive the difference between the original rate and the new lower rate.Banks complain about losing money on these loan proposals but never mind giving their CEO's and other exec's millions in bonuses.That's OK...

[hedgehog]

5. how about instead offering to refinance the loans directly- let the students prepay

the balance and take out a government loan at a lower rate!

[Davis_X_Machina]

6. See if you qualify for

Income-Contingent Repayment, or Income-Based Repayment. The more you make, the more you pay, and if you make bupkis, there's forgiveness after 25 years,

[Davis_X_Machina]

2. If the money saved....

...doesn't go to new grants-in-aid, but instead to underwrite further loans, then the problem is ameliorated, it isn't any closer to getting solved.

The elephant in the room is is the cost of post-secondary education.

The student-aid system has been able to cope with the much-higher-than-inflation growth in the cost of post-secondary education by changing the balance between grants and loans in a typical student's aid package. In the late 70's and early '80's, it was 70/30 grants/loans. Today, it's the inverse.

However, this shift from grants to loans is a one-time adjustment -- it's analogous to the growth in household income due to women's increased participation in the workforce, or the one-time leveling off you saw in health costs in the late '80's and early '90's from HMO's and the like. You can't use it to cover the rising costs a second time.

Although direct lending will, due to the reduction in overhead, make it possible to slow the closing-off of a university education, the basic dynamic remains the same.

[hugo_from_TN]

11. Look for the costs to increase with a push to have more students going to college.

Simple economics - demand goes up, price goes up.

[w4rma]

18. Or the schools will just hire more professors and rates will stay the same.

Supply for schooling doesn't need to be limited and shouldn't.

[Frank Booth]

19. At least this is an attempt at reform.

I agree it's not enough, but it's not a bad start.

[Hugin]

4. Very good!

Now this is progress!

[flyingfysh]

7. I used to work for one of these "non-profit" loan guarantors

I was always wondering how it was they seemed to have so much money. Among other things, I wrote code to pull credit reports, keep track of litigation steps for the lawyers, and calculate payment plans extending out umpteen zillion years. This measure would sink this company, and I wouldn't mind a bit.

[Soylent Brice]

8. banks lobbying with taxpayer dollars, no doubt.

the irony.

[laureloak]

9. Can we please rush this through?

[Alcibiades]

10. I listened to this speech

He really talked tough about the banks that make money on subsidized loans where the taxpayer assumes all the risk. I liked it.

Funny thing is, his whole "we don't need the special-interest middlemen" argument applies even moreso to health care.

[Matariki]

12. This is what is needed if we are going to keep up with other first world nations.

[Dappleganger]

13. Couldn't come at a better time.

[Winterblues]

14. Clinton did the exact same thing and it was one of the very first things Bush* changed.

Bankers have to have their fingers in the pie..

[jody]

15. Funds will be scarce for all such programs so I hope diploma mills are weeded out and other abuses

stopped so qualified, deserving students can receive maximum financial aid.

[chill_wind]

16. K & R. n/t

[w4rma]

17. This is very good! (nt)