Obama Talks Student Loan Reform

Over the last few years, there have been growing concerns about the way the federal student loan program was set up to protect private lenders from risk – effectively guaranteeing profitability backed by taxpayer funding.  There have been a few pieces of legislation to cut back on some of the excessive student loan profit, but Obama is now talking openly about a solution that would completely eliminate the subsidies for private banking interests.  A year ago, I would have called such a proposal politically impossible!

Of course, Obama cannot change the legislation that authorizes and funds the current program – only Congress can do that.  Many political analysts still expect the large student lenders to protest Obama’s plan and attempt to influence legislators with renewed lobbying efforts.   While I am not a fan of that current system, they will certainly put forth the argument that the program has increased total college enrollment in America since its inception.

Another question that will need be answered is how the government will establish an administrative service to review loan applications, distribute funds, and collect repayments.  It is quite possible that these functions could be added on to the existing bureaucratic institutions:  FAFSA and the IRS.  Since FAFSA already reviews financial aid applications and determines student eligibility, not much will have to change over there.  Likewise, the IRS already deals with collecting payments from citizens and it may not take too much modification for them to establish payment procedures for public student loan debt.

The total amount of savings for the taxpayer can only be determined in retrospect and there are no preliminary estimates of transition costs.  In the long run, this may actually help students save money on college tuition by keeping costs in check and not forcing said students to finance the lifestyle of banking executives.