Latest News and Reviews

President Obama’s Student Loan Plan May End Up Saving Less

President Obama’s student loan plan regarding termination of federal subsidies to student loans providers may not save 87 billion dollars as expected earlier. Instead, it can give a relief of 47 billion dollars according to Congressional Budget Office (CBO).

After taking into consideration the market risk of switching all federal student loans into the direct lending program, CBO has provided a figure of 33 billion dollars as estimated savings. Also, administrative costs pertaining to the direct loan program would minimize savings by roughly 7 billion dollars.

CBO calculations besought by Republicans bring forth dilemmas regarding plans of Obama and congressional Democrats. The crux of their questioning is rationale behind spending the projected saving on education programs and deficit minimization. Representative of Minnesota, John Kline believes that taxpayers would be assaulted in a big way as anything suggesting a saving of 87 billion seems wedded to farce.

Committee Democrats, contrarily, suggested that the Republicans were trying to ambush the books of accounts by beseeching CBO to neglect prevailing market scenario. According to Committee Chairman George Miller, a California Democrat, the Republicans were wary of the idea that the legislation has brought a reprieve of 90 billion dollars to students and taxpayers.

Senator Judd Gregg of New Hampshire, senior Republican of the Senate Budget Committee, has already urged CBO to recalculate its projection to incorporate market risk cost which includes the potential of student loan default over a period of 10 years. He said that he was extremely happy on knowing that CBO has informed the economic and budgetary consequence of Obama’s plan to congress.

Obama along with Miller look forward to putting an end to 43-year-old Federal Family Education Loan Program that subsidizes and ensures loans arranged by private lenders. Fresh federal student loans would be coming under the umbrella of 16-year old Direct Loan Program. Miller’s idea, much like Obama, would allow student loan providers to tussle for loan-servicing requirements; namely payment processing and default collection. Going by Miller legislation, 87 billion dollars of the projected saving would be directed into other programs. About 40 billion dollars would be allotted to Pell Grants and 10 billion dollars for grants pertaining to early childhood education. Another 10 billion dollar would be allotted towards deficit reduction.

Republican lawmaker, Kline feels that taking over the student loan program is nothing but a planned hoopla organized in times of budget to finance the spending spree.