By Jen Lynch
In President Obama's most recent legislation concerning college financing, the government has decided to discontinue subsidizing banks, and provide student loans directly. There are currently two ways college students receive loans, either borrowing directly from the government, or taking out loans from private lenders that are government subsidized. In Obama's 2010 budget proposal, he asks Congress to change the entire college-loan system to direct government loans and eliminate bank subsidies.
The current system has "needlessly cost taxpayers billions of dollars" and has subjected students to "uncertainty because of turmoil in the financial markets," the proposal said.
According to an article by the New York Times, this will be the biggest change in federal student aid programs since the Higher Education Act was enacted in 1965. Experts say that eliminating federal loans through banks could save the U.S. approximately $4 billion a year. However, this proposal for direct government funding of student loans will completely cut out an entire private industry of companies like Sallie Mae, Student Loan Corp. and Nelnet Inc. All of these stocks fell sharply after the proposal was announced Thursday. This will be the likely source of argument coming from Republicans in Congress when the proposal is debated.
Overall, the stimulus plan will have several very positive effects on college financing. The plan is contributing an additional $200 million to the work-study program, which allows working students who are often paying their own tuition, to make more money per semester. Tax credits for college students will also now cover 100 percent of the first $2,000 of college-related expenses and 25 percent of the next $2,000 in the next two years. So regardless of the effects on private industry, the proposal will be of more benefit to college students overall.