WASHINGTON – President Barack Obama tried to send a simple message to private student lenders who oppose his proposed overhaul of the federal student aid system: He’s not backing down without a fight.
After junior American studies major Stephanie Stevenson introduced him at the White House Friday, Obama restated his commitment to ending federal support of private lenders to channel more money into direct government loan programs and Pell grants, despite a wave of criticism from bipartisan government officials and the loan industry.
“There are few things as fundamental to the American dream or as essential for America’s success than a good education,” Obama said. “In a paradox of American life, at the very moment, it’s never been more important to have a quality higher education [and] the cost of that kind of education has never been higher.”
Obama’s plan would eliminate the Federal Family Education Loan program, in which the government subsidizes private lenders such as Citigroup, Bank of America and Sallie Mae and guarantees lenders a 97 percent repayment rate on student loans. The program was created in the 1960s, when lending to students was a risky and costly endeavor, but subsidies make the loans virtually risk-free.
“We have a 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, referring to the subsidized loan program.
The Congressional Budget Office estimates eliminating the program could over the next decade save up to $94 billion, which Obama would then use to expand Pell grants. The expansion, according to one study, would include 260,000 more of the nation’s low-income students nationally and 3,300 in this state.
Stevenson was presented to the press as an example of a student who stands to benefit from Obama’s financial aid system overhaul. Standing with the President in support of the proposal, Stevenson said she is a Pell recipient who could not have gone to college if it were not for the government’s aid.
“I’ve fought my way to the top. … And I know the Pell grant and many other forms of aid have helped me to accomplish my dreams,” said Stevenson, who prides herself on being the first in her family to attend college. “I was lucky, but so many students are discouraged from attaining a college education because they lack the financial, social and academic resources to succeed in an expensive and fast-paced collegiate environment.”
But lenders, like Sallie Mae, stand to lose profits from the Obama administration’s plan and have organized lobbying efforts to dissuade an already divided Congress from approving the proposal.
Because it would make spending on Pell grants mandatory – with annual increases tied to inflation – and limit Congressional control over the program, many Republicans and some Democrats are reluctant to support it, arguing the current program provides hundreds of American jobs and provides students – who, despite the expansion, still may not qualify for Pell Grant awards – with a valuable service.
The president insisted, however, that few would miss the program, which encompasses three-quarters of federal student financial aid, as direct lending programs would provide similar services to students and their families.
“There’s only one real difference between direct loans and private FFEL loans,” Obama said. “It’s that, under the FFEL program, taxpayers are paying banks a premium to act as middlemen, a premium that costs the American people billions of dollars each year. Well, 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.”
Republicans say the existing direct loan program – which about 1,500 universities already use – should not be expanded because it gives too much control over the loans to U.S. Secretary of Education Arne Duncan, who critics said should be focusing on improving the nation’s schools, not serving as a banker.
But the administration is ready to fight for student interests, Obama said, adding that if Congress approves them, the proposed changes would begin to take effect as soon as next year and will help more students afford college- bringing the nation one step closer to the president’s goal of having the highest proportional graduation rate in the world by 2020.
“The banks and lenders, who have reaped a windfall from these subsidizes, have mobilized an army of lobbyists to try to keep things the way they are,” Obama said. “They are gearing up for battle. So am I.”
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