This article first appeared in the St. Louis Beacon, April 24, 2009 - The Obama administration geared up Friday for a big fight over its proposal to eliminate a federal loan program that is popular among many college officials, including some in Missouri.
The administration wants to eliminate the Federal Family Education Loan program under which commercial lenders provide federally backed loan funds to students. Replacing it would be an expanded direct government loan system.
Education Secretary Arne Duncan said Friday that ending the subsidies to private loan companies operating under FFEL would would mean "more than $2.2 billion to expand Pell Grants for Missouri students" over the next decade.
President Barack Obama also defended the proposal on Friday, saying that "banks and lenders who have reaped a windfall from these subsidies have mobilized an army of lobbyists to try and keep things the way they are. They are gearing up for a battle. And so am I."
Duncan spoke during a conference call with reporters. He noted that administration officials had been in Missouri recently to push Obama's proposals to make higher education more affordable.
He was referring to last Friday's college affordability summit hosted by Vice President Joe Biden at the University of Missouri - St. Louis. Biden had praised the proposed shift away from FFEL.
Among those disappointed by the proposed change weren't just bankers and lenders singled out by Obama. Some college officials, such as Tony Georges, director of financial aid, at UMSL, have raised concerns. Georges' concerns were practical, saying that the number of students needing assistance continues to rise, and that the government's direct loan program, set up in 1993, accounted for only a small percentage of federal student loans.
Duncan and Obama both stressed that the change would probably make even more money available for college by cutting out the middleman, in this case private lenders.
"We're not in the business of helping investment banks," Duncan said, "but in the business of helping our young people. There'll be student access to tens of billions of dollars (now used) to subsidize banks."
Under the administration's proposal, Duncan said, "Taxpayers are taking the risk, and taxpayers should get the benefits. ... Instead of us giving away those interest payments to lenders who aren't taking the risks, we earn the interest payments."
He added that the proposed shift already is occurring, saying a lot of schools and students had already moved toward direct loan programs.
"We've seen the real ease with which universities have done this. We've had third-party evaluations of customer service, and the satisfaction levels have been extraordinarily high. This is not something new. We've been moving in his direction for the past couple of years."
Some states are concern that the shift would mean the end of some nonprofit initiatives that have helped low-income students understand the necessity of college, plan early for attending college, apply to colleges and pay for college.
An aide to Duncan responded Friday that such programs still would be supported under the Obama plan. The aide said the Federal Family Education Loan program was "on life support. We're proposing a way for students to have loans and provide some funds to states so that some of the activities that state organizations have been involved in will be able to continue."
