With the Obama administration proposing to overhaul the programs a majority of American students use to finance their college education, the student loan industry is fighting back.
The administration is calling for sweeping changes to the decades-old approach of providing federal subsides to private loan companies, arguing that the revamp will save $94 billion that can be redirected to needy borrowers and help even more people go to college. But the industry and its congressional allies are countering that it would add billions to the national debt, put thousands of industry employees out of work and provide shoddy service for borrowers.
The result of the growing confrontation will determine the way students across the country pay for college and, potentially, the fate of dozens of student lending firms.
"The Obama plan would mean that many lenders would lose 100 percent of their business," said Mark Kantrowitz, an industry analyst and publisher of FinAid.org. "It would be a dramatic shift for the way this industry works."
"I don’t see the wisdom in creating a new half-trillion national bank for student loans," he said. "I know how the bureaucracy at the education department works, and you probably are going to get long lines of dissatisfied customers. Those lines could be very long because there are 12 million students."
Some Democrats in states that have strong private lending companies have also opposed the president’s plan, and the Senate budget did not cut out the subsidized federal program, a sign that the Obama plan faces a tougher time in that chamber.
Education Department officials emphasized, however, that it was not correct to view their proposal as an attempt to shut down the subsidized program. They said the only reason the program survives is because of legislation passed last year, after the credit crunch hit the lending industry, that temporarily provided increased support to loan companies.
"The guaranteed-loan program as it existed in the past no longer exists," Shireman said. "It’s on life support, and that’s why it’s so critical that we act now to fix the system." (The Washington Post)