Obama outlines student loan overhaul

Having graduated from law school with a debt that took nearly a decade to pay off, Illinois Sen. Barack Obama wants to make college more affordable — but his plan for doing so runs in direct opposition to Yale’s position on student loans.

Several presidential candidates in recent weeks have suggested that they would change the structure of the federal financial aid system, either in an attempt to make college more affordable or to reduce government involvement in the aid system. But Obama, in a conference call with college reporters this week, made his position on the question of federal financial aid the loudest of all his competitors. He vowed to overhaul the aid system in order to curb corruption by eliminating the middleman between the federal government and students seeking loans.

“One way we can make college more affordable — because a lot of young people have been asking me about this on the campaign trail — is by reforming a wasteful system of student loans that benefits private banks at the cost of taxpayers,” Obama said. “Private lenders are costing America’s taxpayers more than 15 million dollars every day and provide no additional value except to the banks themselves. I think the system needs to be fixed.”

But Yale Financial Aid Director Caesar Storlazzi said the University has already scrutinized direct loan programs — the approach Obama supports — and determined that mandating them would create more problems than would continuing the system currently in place. He said the “most important thing is having a choice.”

“Students can get better deals on their student loans … through private lenders than they can get through direct loans,” Storlazzi said. “There would be groundswell of opposition if we moved to direct loans. It would be more expensive for students.”

Although this policy pronouncement — similar to the same one Obama made while running for the U.S. Senate in 2004 — is among the most specific of his campaign so far, there may be another reason for his attempt to reach out to students. When asked about the significance of students to his campaign, Obama said he acknowledges that there is a “generational dimension” to his run.

“One of the reasons that we’re seeing so many young people engaged in the campaign so early is that they recognize the significant challenges that we’re going to be facing in the years to come … and I think that the feeling among a lot of young people is that we keep on kicking the can down the road when it comes to these challenges,” Obama said in the interview. “I think young people are much less interested in some of the bipartisan bickering over the last decade, less interested in the ideological litmus tests, and there’s more interest in practical solutions to solving problems.”

Meanwhile, several other candidates have also proposed reform in the federal financial aid system.

Several days before Obama’s conference call, Democratic candidate John Edwards outlined a “College Opportunity Agenda,” including a “College for Everyone” plan that pays for the first year of public college if certain conditions are met. Like Obama, he also advocates a direct loan program that would eliminate the private middlemen.

“The chance to go to college meant everything in my life, and I want every young person to have the same chance,” Edwards said in a statement. “Unfortunately, for too many families, this chance is out of reach.

Both Edwards and Obama appear to distinguish their position toward higher education aid from that of New York Sen. Hillary Clinton LAW ’73, whose proposed reforms have centered on primary and secondary schools. In January, she proposed raising the maximum federal Pell grant from $4,050 to $12,600 for higher education students over the next five years, but did not suggest mandating direct loans.

Democratic candidates Joe Biden and Dennis Kucinich have also proposed reform, with Kucinich introducing a plan to make all four years of state college entirely free.

“It would of course cost a small fraction of the war in Iraq,” said Kucinich’s spokesman, David Swanson.

The campaigns of Republican candidates Rudy Giuliani, Mitt Romney and John McCain could not be reached for comment, but some Republicans have also suggested they would reform federal aid. Jim Gilmore said in 2001 that he would support college scholarships for every qualified student, and McCain has said he would prefer offering tax breaks to those paying college loans.

Some of the criticism for Obama’s position has come from the left.

“As a lifelong Democrat, I am disappointed with Senator Obama’s proposal to take away Americans’ right to choose their own lender, abolish competition, and push everyone into a one-size-fits-all, inefficient student loan monopoly,” Henry Howard, chairman and C.E.O. of the U.S. Education Finance Group, said in a statement. “Such a proposal would result in increased borrower interest rates and mandate that the government serve as the only preferred lender.”

If elected, Obama, at 47, would be the fourth youngest president in U.S. history.

Comments

  • GMU student

    My graduate student loans come from private banks like Suntrust at 6.8%.
    These loans are handed to me, then I turn around and pay off my credit card with it. Either way the cycle of debt continues. If the gov can give me 5 % and private banks give me 6.8%, I'm going with the gov. It's just a numbers game.