Obama looks to end banks’ role in federal student loans

April 25, 2009

Poor bankers. Just as they’re catching flak for everything from the global financial crisis to high credit card interest rates, along comes the president and adds another grievance. Barack Obama, it seems, thinks using banks to dole out federal college loan funds is a waste of taxpayer money.OBAMA/ So on Friday he discussed his scheme to boost the flow of federal dollars to those looking to get a higher education. To pay for it, he said, “we’re going to eliminate waste, reduce inefficiency and cut what we don’t need to pay for what we do.” Look out banks. Obama said there are two kinds of federal education loans — direct loans and Federal Family Education Loans. Under direct loans, tax dollars go directly to help students pay for tuition, “not to pad the profits of private lenders,” he said. But 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,” he added.The loans are federally backed, so the banks don’t even have to take on significant risk. Cutting out the middleman, Obama said, could save the government tens of billions of dollars that it could use to help more students. But making that change won’t be easy, he said. ”The banks and the lenders who have reaped a windfall from these subsidies have mobilized an army of lobbyists to try to keep things the way they are.” ”They are gearing up for battle. So am I,” Obama said. “For those who care about America’s future, this is a battle we can’t afford to lose. For more Reuters political news, click here.Photo credit: Reuters/Larry Downing (President Obama discusses federal education programs in front of a portrait of George Washington)

31 comments

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All so he can “force” our people who take government funds to work for him. That’s all this is about.

Posted by TC | Report as abusive

Obama is correct. This is a battle the citizenry cannot afford to lose. How much do you enjoy the banks gouging fees?

Posted by Economics 101 | Report as abusive

This is seriously needed. As a mother of two college students, and one graduate currently working in a professional environment paying his loans, I find that the burden on the student/graduate is significant.At this time being an independent individual with his own household, transportation, and career seem out of reach!The use of, for example,”Great Lakes”, has created extra fees, offering consolidation that often times creates a greater problem by adding interest thus increasing the loan. The student/graduate has then delayed the problem only adding to the coffers of the servicer of the loan!As well, if there is a forgiveness offered for a loan for a graduate that commits to working in a defined area of community work,a teaching capacity, nursing, or social work and the individual consolidates the forgiveness is lost. Often times this may be a loss of $10,000.00 of forgiveness to the student…well in my own experience this is true.Thanks to President Obama for addressing the real needs of young people as they attempt to create a healthy and satisfying life for themselves and this country as the future leaders of our nation!Colleen Healey

This is only right – why should the select few live off the many – too much for too long!

Posted by Helena | Report as abusive

SO LET ME GET THIS STRAIGHT….IT’S A WASTE OF TAX DOLLARS FOR THE BANKS TO FUND THE LOANS BUT NOT FOR FEDERAL GOVERNMENT??? IDIOTS! OBAMA IS A COMMUNIST! AND HIS PRESS SECRETARY ROBERT GIBBS IS THE WORST PRESS SECRETARY I HAVE EVER SEEN. MY 6 YR OLD BROTHER CAN SPEAK BETTER THEN HIM. UMM…UMM…UMM. YOU DRONES THAT VOTED FOR OBAMA ARE GONNA REGRET IT WHEN YOUR TAX RATE GOES UP TO 50% LIKE BRITIAN JUST DID. WELL…THOSE OF YOU WHO PAY TAXES ANYWAY. THOSE THAT RELY ON PEOPLE WHO WORK LIKE ME WILL LOVE IT CAUSE THEY WILL PROBABLY GET MORE MONEY FROM ME.

Posted by MICHAEL MORETTI | Report as abusive

IN THE ARTICLE IT SAYS THAT THE LOANS ARE FEDERALLY BACKED, SO THE BANKS WILL NOT BE TAKING ON RISK. WELL LETS SEE, WERENT FRANNIE MAE AND FREDDIE MAC MORTGAGES FEDERALLY BACKED? AND LOOK HOW THAT TURNED OUT. THE GOVERNMENT CAN’T RUN ANYTHING. WHEN ARE YOU IDIOTS GONNA REALIZE THAT.

Posted by MICHAEL MORETTI | Report as abusive

I have 2 loans on my daughter’s education that I pay monthly. Never had a problem, was able to reduce the interest rate to low levels, can’t see the problem that Barry wants to fix. Only negative was the relatively high fees when the loans were originated, but the banks aren’t getting rich on those.

Posted by JimP | Report as abusive

OK, to those who don’t understand the benefit of this, let me put it to you like this. We taxpayers pay our taxes to the government, and one of the things they do is pay a big fee to the banks to make student loans, which the banks get paid interest on. So, in essense, the bank borrows the money from you to pay it to students and charges you a fee while the students pay them interest. So you, the taxpayer, are getting screwed in the deal, and the bank is taking none of the risk, and getting all the reward. Obama is saying that if the taxpayers are making the loans, why should the banks get the money? By saving those fees, and collecting that interest, the government won’t have to tax you as much. That’s all Obama’s saying – and he’s right.

Posted by Ed Lynn | Report as abusive

Banks, brokers and insurance companies make money form “other people’s money”.They make money by finding ways to charge fees, increase premium or do some phoney accounting. If Obama succeeds in gouging these institutes, I wish all the best to him. But, what about bailing out these institutes with tax payers’ expense? On one side he spends trillions to save banks etc and on the other hand he tries to save billions from them!!!!! Go figure.

Posted by bhalchandra | Report as abusive

Wake Up, America!This is the greatest power grab in the history of this nation. Half this nation is a bunch of lap dogs begging for scraps from their master.This socialist government wants to control all aspects of our society because they believe they can do better than free enterprise. They own a post system that loses billions of dollars a year. They own AMTRACK that loses millions of dollars a year. Now they own the largest insurance company, the largest auto company, the largest banks, and the largest mortgage companies. In the name of ‘reduced cost’ they are attacking the private business of student loans and health care industry by eliminating the “middle-man”. Guess what? Your job just might be one of those “middle-man” jobs! The governments job is to regulate and create a fair playing field for business. They are not in the business of doing business! That is socialism. Wake Up, America!

Posted by JoeV | Report as abusive

bottom line.Government just taking more money from the public.

Posted by Apple | Report as abusive

Simple solution.Remove FEDERAL and BANK lending for college. College is *not* a right, it is something you can save and work for, or skip.If you want to go to college, WORK FOR IT. If you don’t have the money, that means a) you didn’t plan (or work hard enough to get scholarships), or b) your parents didn’t plan. That, quite frankly, is not my problem.The way high school students arrive on campus these days is a crying shame – it’s 4 more years of babysitting for which Mommy and Daddy pay. The students who arrive and work their way through are higher-achieving, more committed to the outcome.

Posted by heyteachdotwhat | Report as abusive

Lost in all this discussion is that if the Feds take over making all the loans, they will need to have the people and infrastructure in place to do this.Now… tell me when the Feds have done a good job of operating a program?

Posted by gvlen | Report as abusive

To the react-first, think-later types:If you read the article carefully rather than just skim over it and quickly interpret it through your thick-skulled biases, you’ll find that the direct loans already exist and are much more efficient than the loans through banks, which add another layer of bureaucracy AND make getting an education significantly more difficult for average people. Why in God’s name do you people think of Obama and leftists in general as some tax-eating demons? He is aiming to help students, something you obviously cannot relate to, judging from your obvious lack of education and intellect.

Posted by conscious of reality | Report as abusive

I am shocked at how stupid most of the people posting here are. Let’s get this straight, Obama is trying to make it so banks don’t make tons of money off tax payers. And some of you are mad at him for that? You must be bankers. And what does Gibbs have to do with this? Why don’t you go put on some revolutionary war tights and teabag your brother.

Posted by hahagop | Report as abusive

I am a college student, and because I messed my credit up when I left high school, It would now be very hard for me to pay for college without federal loans that do not check credit. I mention this because my view of the this directly impacts my ability to go to college. My major is Political Science, and as such, I think it would be best to speak for everyone and not just myself.On a whole, this will have a detrimental effect on the economy. Sure, the United States taxpayers would save billions if the banks were cut out completely. The interest generated from the loans would have an exponential effect that would steadily increase the ability of the program. As well, like me, anyone with bad credit would be able to get a loan and go to college. Sounds good right?But, there is another factor. For one, the US government is not a business. It is a Administration, and by cutting out private involvement in loans, it will therefore be taxing you in order to gain money and to make a profit. This, for one, is an issue because it will be directly competing with private banks. An easy way to imagine the impact is this: consider you just opened a restaurant, but because the government food trolly is handing out steaks for a dollar, and the lost price you can charge is 2 dollars, you do not have any customers. But you can still make money off of other things right? Wrong. It is a matter of principal that we have to turn this offer down, even though it would probably benefit alot of people in the short term. Basically, if we allow the government to invade one market, then there is nothing stopping them from invading on other markets. The only recourse, the same exact recourse we have stated time and time again for the last 200 years, and the ideology that our country was founded upon, is that we do not allow government intervention, except when the safety of the public is a concern. So tell me, what would be the point now in making it easier for people to go to college, when I am reading headlines in the present that read, ON THIS VERY SAME SITE, RIGHT NOW, IN THE NEXT TAB I PLAN TO READ AFTER WRITING THIS “Graduating U.S. college seniors entering grim market” . If Obama wants to help the situation, he needs to stop using taxpayer money to back bank loans. This will cut the increase, but it will offer more jobs to the college students who are willing to fight the odds, struggle through, and get their degree. I say this even knowing that if he were to cut this, it means my funding would most likely be cut, because of my bad credit rating.

Posted by Daniel | Report as abusive

Wow.. there’s a lot of ignorant people on here. This is seriously needed. I’m a college student with loans and I haven’t been able to get grant money till now cause I wasn’t considered an independent till I was 23 and even then it wasn’t enough to cover my college and my parents couldn’t help me cause of my mentally disabled brother. This will stop the government from giving the banks tax dollars so they will fund the loans, the banks didn’t fund the loans for free, so it’ll cut out the middle man and let the government do it. The government will then take the then unused tax dollars and put it into government aid for students seeking high education. This is wonderful!

Posted by Jenn | Report as abusive

This is just an excuse to Centaralize the Financial Power in the United States.In the G20 the President made an Illegal Agreement to restructure the Financial Sector of the Untied States and force Americans to be subject to Regualtions and Laws written by the IMF and World Bank. The Agreement was NOT a Legal Treaty, it was just an Agreement. So to Subject Us to a Non-Legal and Non-Binding Agreement that subjects us to an International Regulatory Body is UnConstitutional.Wake Up People…..Your Country is being Destroyed under your Feet, while you Applaud.

As a single mother of two, I am saddened by the comments by heyteachdotwhat. You have a very elitist attitude. You clearly had parents who could finance your education…how lucky for you. Or you are so extremely intelligent( I’ m thinking that anyone who would make these comments is not–and I sure hope you are not a teacher) that some school wanted to give you a four year free ride. Loans are the only way many, many students can get a college degree. Not every one can acheive a full scholarship. My children work full time while attending school full time & there is no way they would be able to complete their education without loans. I am so happy to have a leader in power who understands that a college education is the ticket to a better future for all people, not just you few elite people who have the csah.

Posted by AdrienneAnn | Report as abusive

let me explain this to all of you: since the gi bill of ww2, the federal govt has been pouring money into edcuation like a tsunami, and the education establishment has behaved like an infant – all appetite on one end & no sense of responsibility on the other (gov sununu, call your office). washington created this monster, & now the afroindonesian mahdi wants to take it over; how that will fix anything is beyond me, as washington’s track record of fiscal responsibility leaves much to be desired.

Posted by jd | Report as abusive

This doesn’t surprise me. I am sure it will be quite well received these days. Why not allow the all wonderful federal government more control over our lives? The education system in America stinx anyways. It’s a “jobs” project that’s over priced, over-funded, and many times produces students who are quite under par in terms of their knowledge and experience in their respected fields. Like everything the federal government gets ahold of they screw up. And the more they screw it up the more it costs us all. Sounds like a great idea!

Posted by jason | Report as abusive

its a good decession from Americas best president.the education in America is too costlier, as it hurts many talented students, by this new decesion will help lot of students and it also helps to the government.——————————————————–Pradin\off ice politics uk

Posted by Pradin | Report as abusive

The fact is, the Obama administration’s proposed reforms of the student-loan system are a no-brainer — they streamline the process, save money, and help more people go to college. Republicans, however, remain staunchly opposed, on purely ideological grounds.Clinton compromised with Republicans in the ’90s and created a level playing field. Colleges were allowed to choose between direct government loans and guaranteed private-sector loans. Private plans lost, BIG TIME, for quite a while. Eventually, however, the tide turned, and colleges shifted away from the public plan. Was it because the private sector was superior? No, it was because the private sector was bribing college-loan administrators. Lenders plied college-loan officers with meals, cruises, and other gifts. Some loan officers were given lucrative stock offers. Columbia’s director of undergraduate financial aid purchased stock in Student Loan Xpress — which became one of that school’s preferred lenders — for $1 per share and sold it two years later for $10 per share. Some lenders offered millions to the universities themselves to drop out of the direct-lending program.The the vast private profits made available by guaranteed loans is what drives Republicans’ opposition to Obama’s reforms to the student loan system. Nothing more.

Posted by getplaning | Report as abusive

getplaning. Go ahead and bad mouth the republicans again. There are a lot of well thought out comments on why this plan is bad and I didn’t see anyone falling to the “those republicans…”.The bottom line is this, it won’t be cheaper to have the government pay for college. Anytime we use government funds (and many say the government running anything is bad for our future)it will result in higher taxes. That’s what is going to happen and it is happening right now. Low taxes? No, not true.I know I am not using any government or private money to send my daughter to college. So it isn’t costing the government on red cent. But then again, I planned for it and am now reaping the rewards because I lived within my means to ensure she would have a chance to attend college. I agree with anyone how says hard work is the foundation of this country and you pay your own way by working hard.Giving people something for nothing, is going to cost us dearly in the end in higher taxes. Besides, where is the money going to come from? Obama in just 3 months has spent more than any other president in history (yes, putting them all together). This man is a trainwreck and our kids are going to pay the price for his big government giveaways (which aren’t really giveaways. We are going to have to pay the piper and it will be a doozy).

Posted by TC | Report as abusive

Oh, yes, TC, there are lots of well thought out comments on this thread.”All so he can “force” our people who take government funds to work for him” isn’t one of them.This is one of those typical situations in which Democrats want to spend less money and make a federal system more efficient, and conservatives are opposing them. The Obama administration wants to save $4 billion a year by ending subsidies to lenders. The White House and Department of Education have come to the conclusion that there’s no point in laundering loans through lenders, who make a guaranteed profit, for no reason.I find it hard to understand how saving $4 billion a year will result in higher taxes, perhaps you can explain that to us? I was also wondering how you come to the conclusion that underwriting college loans at favorable terms to qualified applicants is giving people “something for nothing?”

Posted by getplaning | Report as abusive

getplaning. Perhaps you missed the point that Obama in three months has spent more than any other president in history…combined.You can’t spend you way out of this “crisis” without it coming back to haunt us. Saving 4 billion dollars a year after spending 3 trillion in 3 months? Suppose you tell us how saving 4 billion dollars a year (it is a lie since Obama plan is the grand giveaway) will really be savings at all? It won’t, so don’t even bother trying to answer, even economists can’t answer that question. So I can’t expect a far left progressive liberal to do it either.Also, in case you haven’t noticed, Obama has said if students take government funds, they will do service for the government. That is a fact and it is becoming obvious you really only care about demonizing republicans because you really have no answers for the bad policies the far left of the democrat party are trying to force down our throats.Most of the citizens of the United States want less government and lower taxes. Look at the Rassmussen polls in case you don’t believe the truth.Anyway, the government taking over student loans is a very bad idea and will lead to higher taxes. Fact!!

Posted by TC | Report as abusive

tc the liberal ideology always flounders because it has an inherent flaw,and that is human nature.if there is no sacrifice there is no appreciation.this will probably sound very negative ,and will be dismissed out of hand by eric h and get planning,but as someone who was a ex liberal government representative,i left the fold because i was so sick of the ungratefulness of people that i saw repeatedly hold they hand out.entitlement is like a decease and this is the rock on which obama is going to perish,he has raised expectations so high that people are going to get something for nothing and when the promises don,t materialize they will turn on him.

Posted by brian lee | Report as abusive

TC, you like Rasmussen polls? How about THIS one–Rasmussen Reports national telephone survey-Just 21% of GOP voters believe Republicans in Congress have done a good job representing their own party’s values.Sixty-nine percent (69%) say congressional Republicans have lost touch with GOP voters throughout the nation. These findings are virtually unchanged from a survey just after Election Day.Among all voters, 73% say Republicans in Congress have lost touch with the GOP base.Seventy-two percent (72%) of Republicans say it is more important for the GOP to stand for what it believes in than for the party to work with President Obama. Twenty-two percent (22%) want their party to work with the President more.In other words, the Republican base, by a large margin, is unhappy with their party’s political leadership for not being right-wing ENOUGH. Which is what their real leadership, the Limbaugh National Committee, has been saying.Unfortunately for you, TC, the electorate at large has a distinctly different outlook. They strongly want Republicans to cooperate with President Obama, and strongly believe they are not making a good-faith effort to do so, either. Republicans want to fight, but this not a fight you are winning.

Posted by getplaning | Report as abusive

obama quoted churchill recently,perhaps he should have added this as well, churchill,”anyone in their twenties who is not a liberal,has no heart,but anyone in their forties who is not a conservative has no brain”i am so pleased that the democratic party have a large majority,and have people like dodd,franks,and pelosi at the helm.this is going to be a most enlightening time for the young people who are joining the voting process,with the same expectations as there was at the beginning of the jimmy carter presidency.they will then be more willing to except the truth that the democratic congress put pressure on the lending institutions to discard sensible safeguards and lend to people who normally would not have qualified,

Posted by brian lee | Report as abusive

Remember Animal Farm. Napoleon is going to take your puppies and they will come back to bite you. A student loan bring with it servitude.

It seems like every year my studen loans get sold to another bank. They turn around and charge me $2,000 dollars for their services. I pay about $3,200 dollars a year towards my loans. There’s always some idiot at the bank that tries to get me to consolidate my one loan to extend it for another 20 years. My loans have been sitting at $16k for the last 16 years because of this problem. I hope that Obama’s plan go through one day, because if anyone needs it…it’s me.

Posted by Dave_in_desert | Report as abusive