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Obama Touts Plan to Change College Loan System

Philip Elliott | 4/29/2009, 4:23 p.m.

President Barack Obama on Fri. April 24 renewed his call for the government to stop backing private loans to college students and replace them with direct financial aid to young people.

Obama said the surest test for success in the challenging economy is a college degree or other training, yet access to higher education continues to shrink as costs rise. To reverse that, the president repeated his campaign proposal that would eliminate the Federal Family Education Loan program that costs taxpayers $15 million each day

The administration has pushed for federal financial aid to go directly to students, not to banks that lend money to students. Obama said he wants to eliminate the "middle men" lenders that he says add inefficiency to the system - a move he said could open classrooms to 8.5 million more students.


The president said that by the end of the next decade, he wants to see America have "the highest percentage of college graduates" anywhere in the world. Obama said the country "used to have that" edge, but doesn't have it any longer.

The cost of higher education "has never been higher. There are few things as fundamental to the American dream or as essential as a good education," Obama said. "We have a student loan system where we are giving lenders billions of dollars in wasteful subsidies." He called the system "a paradox of American life" that threatens to widen the gap between the haves and have-nots.

Obama wants to end the decades-old, dual system the federal government uses to advance loans to students to pay for college. Under that system, students at some colleges borrow directly from the government, while others get loans from banks, non-profits or state agencies who in turn receive subsidies from Washington.

The president's proposal would switch the federal student loan system entirely to direct lending from the government. Obama has claimed that the change would save at least $48