One of the most prudent educational reforms President Obama is pursuing is going to be the implementation of direct lending of student aid.
Most student loans in the U.S. are issued by the government subsidizing private banks that lend students the money they need to complete their education.
The move toward direct lending could save the government up to $48 billion during the next 10 years and all future loans would be coordinated directly between the schools and the government itself.
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Many critics of the subsidized lending program criticize the large profits the lending companies make off of student loans while taking little risk. This is attributed to the fact that 97 percent of the student loan repayment is guaranteed to the lending companies of the student loans.
President Obama stated that the difference saved in the plan would be used to create more Pell Grants, which is money directly given to students without requiring repayment.
Many conservatives worry such a plan would hurt the banking industry even further, especially given the economic crisis and the trouble many banks are already facing.
They are contending the plan would risk thousands of jobs across the country, which rely on the private student lending companies.
Others fear the centralization of power in the Education Department, which would then have increased control of all federal student loans.
Sallie Mae, the largest student loan lender in the United States, is fighting at the forefront against Obama’s plan.
The company has offered an alternative policy incorporating many aspects of Obama’s plan, but leaves the fundamental structure of using private lenders in place.
The proposal Sallie Mae offers includes: support for the increased number of Pell grants the government would offer, increased competition between companies for student loan contracts, risk-sharing alternatives that would remove the complete burden from the federal government and support for bipartisan solutions, such as the Ensuring Continued Access to Student Loans Act of 2008.
Many will see the benefit of saving the government money, even if it is small in comparison to the huge sums already wasted with the current fiscal policy.
However, two key aspects of the plan should make any person wary who might consider support.
The first and most important is the impact it would have on the economy.
With the country in one of the longest recessions it has dealt with and millions of jobs being shipped overseas, it would be unwise to put thousands more domestic workers out of a job.
More availability of Pell Grants can be achieved in other ways such as increased allocation of government funds in the annual budget. The jobs that would be lost from direct lending, however, cannot be easily fixed with government action.
The other major aspect that should make readers wary of direct lending is the incompetence our government has already shown in handling any fiscal policy.
It has wasted trillions on failed economic policy and promises trillions more.
Already the National Treasury has reported more than 11 trillion dollars in debt and a deficit expected to exceed 1.7 trillion dollars for the fiscal year, more four times the deficit for the previous fiscal year.
While the record of the market to handle loans has been called into question the during financial struggle, the government has proven itself a far less secure and economically sound place to begin a whole new segment of the banking industry.
Chris Busby is a political science and English major and may be reached at [email protected]
