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Positive Reaction To Student Loan Overhaul

By CityTownInfo.com Staff

March 5, 2009

Numerous commentators are praising President Barack Obama's proposal to revamp the student loan process.

Obama's budget calls for all federal student loans to be directed through the Direct Loan Program under the U.S. Department of Education, rather than through private lenders such as Sallie Mae. The move would effectively eliminate the subsidies the government now pays these lenders, saving taxpayers billions of dollars every year, which will then be directed back into federal Pell Grants.

Iowa's Des Moines Register applauds Obama's plan. "Obama's proposal makes a lot of sense-a lot more sense than what's going on now," the editorial comments. "It's become virtually impossible to justify the current student loan market's heavy reliance on private lenders. Congress must finally do right by taxpayers and students by using public money to make education more affordable-not subsidize private lenders."

College students are also favoring the proposal. "Expanding the amount of money that can be borrowed from federal lenders is a move that benefits students," writes Pennsylvania State University's The Daily Collegian. "Once the transition to federal loans is complete, the money saved will be used to help needy students afford college."

The proposal has huge negative implications for private lenders, and as a result, last week Sallie Mae's shares plummeted.

Watchdog Politics Examiner notes that private lenders insist that the Education Department is not equipped to handle the more than $60 billion a year in federal loans to students and their families. "Direct loans are simply not subject to the quality of service, especially when it comes to helping borrowers avoid default," said Marcia Sullivan, director of government relations at the Consumers Bankers Association, a bank trade group.

But the Department of Education responded that since the program is not expected to begin before 2010, there would be ample time to prepare for the direct lending program.

Analysts agree that the plan is a good move. The New York Times remarks that the proposal would effectively help students instead of lenders. "By embracing these changes-and eliminating federal subsidy," says The Times, "Congress can promote the goal and save taxpayers nearly $50 billion over the next decade."

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