Obama plan would end banks' role in federal loans
Here's a change worth noting in the 2010 federal budget proposal unveiled today by President Barack Obama: it would abolish the private sector's role in dispensing federal student loans for college.
Beginning with the 2010-11 school year, students would take out loans from Uncle Sam himself through the long-established Direct Loan Program. Federal officials say the move would save $47.5 billion over 10 years, compared to the private sector Federal Family Education Loan program.
Students would never again have to surf the Web and parse the differences between Sallie Mae and Bank of America for a federal loan, though they could still take out a private loan to supplement their Stafford or Perkins loans.
"That program has not only needlessly cost taxpayers billions of dollars, but has also subjected students to uncertainty because of turmoil in the financial markets," the administration said in its budget document.
The changes were lauded Thursday morning in a press release from U.S. Rep. George Miller, D-Cal., chairman of the House Education and Labor Committee. He said the Direct Lending program would be less expensive than the private sector FFEL program favored by the Bush Administration.
Last year around 1,100 colleges and universities including the University of Florida participated in the Direct Lending program, while 4,600 schools used private lenders to dispense federal loans. But many institutions like Stetson University College of Law have been abandoning private sector loans, following the credit market crisis and a string of high-profile investigations into unlawful or unethical behavior in the student loan industry.
Don't expect the federal loan industry to give up its program without a fight, though. It earns more than $4 billion a year in subsidies.
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-- Tom Marshall, Times staff writer