Fight Looms Over Plan to Give Loan Funds to Students

The administration wants to cut out private lenders, setting up a showdown
By Clay Dillow,  Newser Staff
Posted Apr 13, 2009 8:49 AM CDT
President Barack Obama, accompanied by Federal Reserve Chairman Ben Bernanke, makes remarks on the economy, Friday, April 10, 2009. Obama wants education loans to come direct from the government.   (AP Photo/Gerald Herbert)
camera-icon View 2 more images

(Newser) – President Obama's plans to end a subsidized student-loan program—diverting billions of dollars in profits for private lenders like Sallie Mae to scholarships for needy students—is prompting howls of protest from lenders and setting up a Congressional showdown, the New York Times reports. The Congressional Budget Office estimates that replacing subsidized loans with direct government lending would save $94 billion over the next decade that would be used to expand Pell grants.

Critics of the subsidized system claim private lenders have collected hefty fees for years on risk-free loans that are 97% backed by the government. With the government now underwriting most education loans made by private lenders, many argue that the private lenders are merely expensive middlemen. Republicans argue that the plan is another instance of Obama expanding government, and Dems in districts where student-lenders are based are prepping for a fight.