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WASHINGTON - Congressman Tom Petri (R-WI) praised a section of President Obama's proposed budget, released today, which calls for ending "entitlements for financial institutions" and originating all new federal student loans through the Direct Loan Program.
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 loans made by private lenders but with the government guaranteeing that those lenders will get most of their money back.
"For years I have argued that Direct loans managed by the Education Department, by eliminating the subsidized middlemen, have proved to be a far better deal for the taxpayers while providing the exact same loans to students," said Petri. "The Office of Management and Budget estimates that originating all new loans in the Direct Loan Program would save taxpayers $24.3 billion over five years and $47.5 over ten years, so the President has clearly made the right choice here."
Recently, hundreds of colleges have switched to the Direct Loan program because, unlike the FFEL 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.
"This is a big, positive change, and I look forward to working with the President and the Education Secretary in order to ensure students access to loans which are both affordable and scandal free," Petri said.
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