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Student Loan Reform Benefits Taxpayers But Makes Banks Worry

The figures released by the Department of Education in April showed that 67% undergraduates in the 2007-2008 school year had received some financial aid with an average value of $9,100 in the form of loans, grants and work-study aid.

Even though the expensive higher education fees will not likely to change very soon, the Obama administration’s proposal which eliminates incentive to private lenders who offer student loans will dramatically change the way how the loans operate.

The plan already headed for passage on Capitol Hill, if approved, taxpayers would be the biggest winners. The Congressional Budget Office said that taxpayers would surely to have almost $100 billion of saving over the next ten years and lower-income students would also have the chance to receive more student aid in the form of grants. The big losers on the other hand would be private lenders and banks.

Right now, private lenders are lending money to students using the rates set by the Congress, and the government is guaranteeing 97% of the loan’s value, which give the private lenders huge profits at a minimal risk according to program critics.

Saving from the plan will be used to award more Pell Grants to low-income students. Student groups are overjoyed with the news. According to Angela from the United States Students Association, students want to graduate with manageable debt, but the current system does not allow them to do so, but the President has realized a better way to have a better loan policy.

Banks are strongly on the opposition saying that choice and innovation in the marketplace will be removed in a government-run loan program. According to Sallie Mae, the largest student lender in the world, the essentials of Obama’s proposal are already around for more than a decade but powerful lobbyist have so far manage to protect the lenders interest. However, this time around, the largest lender have changed course and compromised the Obama administration.

According to Sallie Mae’s spokesperson Martha Holler, their goal is to help make education affordable and they want to make sure that students have the money that they need for college. With the current proposal of the administration, the government will own the loans but Sallie Mae still get the job of originating and processing the loan through a free-for-service contract award by the government.