By Mary Beth Marklein USA TODAY
President Obamas proposal to overhaul the student loan industry sailed through the House last year but faces a tougher fight in the Senate.
Key critics say the plan would create more problems than it solves. But Education Secretary Arne Duncan told reporters Tuesday the real issue is a matter of priorities.
We (can) either subsidize banks or invest in students he said. The choice couldnt be more clear.
Under Obamas proposal the federal government would end taxpayer subsidies to private lenders and make loans directly to borrowers by scaling up a smaller program launched under the Clinton administration. Doing so Duncan says would free up billions of dollars that could be put toward other uses such as student aid and community colleges.
What borrowers pay would not change: The same loan types and amounts would be available with the same fixed interest rates.
But private lenders say students would see a decline in service which could lead to higher default rates. They say alternatives should be considered.
We believe reform is needed to make college more affordable says Martha Holler vice president of Sallie Mae the nations biggest student lender. But we think families would be better served by having competition rather than government-run monopoly.
About 4100 schools participate in the federal program involving private lenders down from 4650 three years ago. The number of colleges using direct lending climbed in that period from about 1063 to nearly 2200.
Some say turmoil in the financial markets drove their recent decision to drop private lenders. We believe the direct loan program will provide our students with continuity of services says Carolyn Lindley financial aid director at Northwestern University which plans to switch to direct lending this fall.
But Dewey Knight associate director of financial aid at the University of Mississippi says his school wont switch unless it has to. The current program has served our students very very well.
