• zInternationalStudents Blog

  • Saturday, January 19, 2019

  • Obama’s Student Loan Plan Wins Support in House

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The New York Times reports that the chairman of the House Education Committee has dismissed a last-ditch plea from the private student loan industry and is throwing his support behind President Obama’s plan to end the role of private banks in the federal education lending systems.
Mr. Obama’s plan remains deeply contentious in Congress, and still faces strong opposition from private banks that for decades have earned big profits for handling federal student loans.
But after mulling the issue for months, Representative George Miller, the California Democrat who is chairman of the Education Committee, now plans to introduce legislation next week that would rely on direct government lending to replace the federally subsidized loans made by private banks. Administration officials who have reviewed drafts of the legislation said that it substantially adopts Mr. Obama’s proposal.
In a conference call with reporters this week, a number of private-loan industry officials, as well as leaders of some private nonprofit lenders, warned that Mr. Obama’s plan would eliminate competition and create chaos for colleges and students that now use private lenders as they are forced to switch to a fully government-run system.
The industry had urged Congress and the White House to consider its own alternative.
But Congressional Democrats, the White House and officials at the federal Education Department have now rejected that plan, contending that it was based on accounting tricks and would pour $15 billion into the banks’ coffers that Mr. Obama would direct to the Pell grant program for low-income students.
“It’s unfortunate that a small number of lenders are using legislative gimmicks to mask the fact that their proposal would divert $15 billion into their own pockets at the expense of students,” Mr. Miller said in a statement. “This cynical stunt is another reminder that our federal student loan programs need major reforms to ensure they operate in the best interests of students and taxpayers.”
The president’s proposal, first outlined in his initial budget in February, would save the government roughly $87 billion over 10 years, according to the Congressional Budget Office — money that the White House says should be used to aid impoverished students.
The federal government already makes some loans directly to students, but most federal student loans are handled by private firms even though there is virtually no private capital available for financing the loans. The industry argues that it provides competition and better marketing and servicing of loans.
The administration’s view, shared by a number of Democratic lawmakers, is that the private lenders should no longer be paid by taxpayers to operate a virtually risk-free business in which they essentially use taxpayer dollars to originate loans, with repayment guaranteed, and then resell those loans to the Treasury.

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