February 27, 2009

Obama proposes to end federal lending through banks

Posted in Parent PLUS Loans, Saving for College, Stafford Loans, Student Loan News, The Financial Aid Process at 2:32 PM by Joe From Boston

President Obama is threatening to axe the FFEL program, through which students borrow federal student loans through banks and companies such as Citibank, Discover, and Sallie Mae.

It’s important to note that this will NOT affect the 2009-2010 school, year, so stop panicking.  You can panic next year.

This is the first time the FFEL program has been targeted.  Bill Clinton tried to do the same thing when he was president.  Approximately 40% of schools transferred to the Direct Loan program, which is where students borrow directly from the government.

There were two major problems:

1)The program began to grind to a halt under it’s own weight.  Remember, government functions by getting services from the lowest bidder.  So as competition started to dry up, customer service  became horrendous, to the point where financial aid officers pulled their schools out of the Direct Loan program.

2)Where will the government get the money to lend?  Banks are set up to lend, and usually they do – they have to to make more money.  Governments don’t have the same luxury.  The United States is already $10.8 TRILLION – that’s $10,800,000,000,000.00 that our government owes to other people.  So where is it suddenly going to get all this money to pay schools, while it waits for students to repay?



  1. Pamela Cook said,

    We are leaning more towards socialism every day. Where will this kids get the money to go to college. Is Obama intending on paying for it? Our government is broke.

    • Pamela – perhaps we should be asking a more important question:

      Why on earth does higher education cost so much? Other countries charge MUCH less and offer just as good, or better, an education.

    • david said,

      there is no way banks should be profiting off of our college education. Great move president Obama!

      • David – why does college cost so much in this country? Aren’t the colleges making a hell of a profit too?

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