On Friday, President Obama repeated his call to reform college loan programs, lending money directly from the government to the student and eliminating private lenders altogether.
Obama is facing opposition from both parties, but many agree that cutting private lenders out of the equation is an obvious solution that is ”long overdue.”
Armed with University of Maryland student Stephanie Stevenson and her mother, Obama asked colleges and universities to “put affordability front and center” and help make it easier for students to attend college, and for families to help pay for it.
Obama also asked that every American dedicate at least one year of their life to higher education, saying that he wanted to see America as having the highest proportion of college graduates in the world. The president told the Maryland crowd that the States “used to have that; We no longer do. We are going to get that lead back.”
The president then admonished the current Federal Family Education Loan (FFEL) program saying that the “student loan system” is igged to reward private lenders without any risk.” For Obama, it comes down to either supporting special interests or supporting financial aid for American students.
This proposal is not sitting well with both Republicans and Democrats, with The New York Times calling it “one of the most fractious policy fights of the year.” Republicans are saying that the proposal is proof of Mr. Obama’s attempts to vastly expand government, although, without the government bailout some of the lenders arguably wouldn’t have been able to continue their business. Democrats tend to be more divided--those against Obama have many lenders in their district who serve as sources of employment.
However, since the government guarantees repayment on all student loans made with taxpayer money for up to 97 percent, private lenders have simply been a middle-man collecting fees on loans that are virtually risk-free. By cutting out the private lender, the government is arguing that it will simply be doing what they have always done, except with less middle-men.
Lenders fear what their loss will do to the unemployment rate, reminding critics of all the jobs they provide. Some lenders like Sallie Mae are not against Obama’s plan, but want to find a way for lenders to stay in the process while taxpayers still get their break. In other words, a “constructive alternative that would pull the best of both programs,” in the words of Sallie Mae spokeswoman, Martha Holler.
Our Take
Once one takes a hard look at the private lenders role in student loans compared to the government’s role in student loans, it is obvious that private lenders are a bureaucratic obstacle that must be cut out. It is simply a waste of time and taxpayer money. Democratic representative and former provost of Southampton College, Timothy H. Bishop, agrees saying, “When you add all that up, a very legitimate question to ask is why do we even need private lenders?”
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So who should shell out for loans anyway?
