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WASHINGTON - The non-partisan Congressional Budget Office (CBO) has determined that President Obama's proposal to end the guaranteed student loan program and instead encourage students to take out identical loans through the Direct Loan Program would save the government $94 billion over ten years. Rep. Tom Petri says he feels vindicated for his advocacy of direct lending over 20 years, despite determined attacks on his position by special interests.
"That's a fantastic amount, and it illustrates how rich the subsidies were to the financial institutions which participated in the student loan program, and why they fought tooth and nail to keep the guarantee program going," Petri said.
Currently, there are two types of federal student loan programs: the Direct Loan Program through which loans are made directly to students by the government; and the Federal Family Education Loan (FFEL) Program, with "guaranteed" loans made by private lenders but with the government guaranteeing that those lenders will get most of their money back.
"I started working on the Direct Loan Program some 20 years ago at the suggestion of financial aid experts in the state of Wisconsin, got it adopted as an experimental program at Marquette and a number of other colleges around the country, worked with President Clinton to expand it nationwide, and now it looks as though it may become either the only or the leading way of providing assistance to the people who want to go to college," Petri said. "I think that is going to be a wonderful day for both taxpayers and for students to see this program become the dominant federal aid program in the student area."
Recently, hundreds of colleges have switched to the Direct Loan Program in preference to guaranteed loans because, unlike the FFEL guaranteed loan program, direct loans provide students with continued access to federal loans regardless of the state of the credit markets. These schools are reporting a smooth and easy transition to the program and satisfaction with the service.
During the last Congress, revelations of special favors, benefits and kickbacks received by colleges and college loan administrators to persuade them to steer students to for-profit, federally subsidized loans under FFEL further highlighted the drawbacks of the subsidized program.
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