President Obama on Friday ratcheted up his push to eliminate the Federal Family Education Loan program, saying he's prepared to fight "wasteful subsidies" to student lenders..
In a speech from the White House, Obama repeated arguments that eliminating FFEL would save "tens of billions" of dollars through reduced borrowing costs for the federal government, which could then be plowed into additional grants for students.
"This is not about growing the size of government or relying on the free market - because it is not a free market when we have a student loan system that's rigged to reward private lenders without any risk," he said. "It's about whether we want to give tens of billions of tax dollars to special interests or whether we want to make college more affordable for 8.5 million more students."
Currently, there are two types of federally guaranteed student loan programs, FFEL and the direct loan program, though the bulk of the roughly $85 billion in student loans originated each year are FFEL loans.
FFEL lenders, which include state-level nonprofits that issue municipal debt backed by student loans, have vowed to fight Obama and the Democratic leadership in Congress, both of which support moving to the direct loan program.
Among other things, the FFEL lenders argue that they are indispensable partners for students and parents because of their debt management and financial literacy programs.
If forced to close shop, the lenders also say the federal government would limit student lending choices and lead to the unemployment of knowledgeable administrators at the state and local level at a time when states and struggling to maintain employment in all sectors.
"Higher education organizations are now in the process of putting forth proposals for reforming FFEL so that it can better serve students and taxpayers," said Peter Warren, president of the Education Finance Council, which represents state-level nonprofit FFEL lenders. "EFC is convinced that simply originating all new student loans through the existing direct loan program is not the best available option, and we urge Congress and the administration to work with stakeholders in fully exploring alternatives."
But FFEL lenders received a blow on Thursday night, when Democrats reached a tentative agreement to use a fast-track parliamentary procedure known as reconciliation when crafting the fiscal 2010 federal budget. The procedure requires the education committees in Congress to undertake deficit-cutting measures that could lead to the elimination of FFEL. The Congressional Budget Office estimates that cutting the program could save about $100 billion over ten years, though FFEL lenders say that figure is unreliable.
On a conference call with reporters on Friday, Education Secretary Arne Duncan said that the agreement on reconciliation "was a very, very encouraging sign" and "a step in the right direction."
"This is clearly a very strong indication that folks want to move forward with what we think will literally transform the educational opportunities for students for years to come," he said.
Bob Shireman, an Education Department official also on the conference call, dismissed concerns that eliminating FFEL would lead to large layoffs.
Asked specifically how many jobs could be lost through the switch, he said: "Just as many people are needed to do the work of collecting and servicing direct and FFEL loans."
FFEL supporters have said that argument is misleading because if a FFEL lender is forced out of business in one state, its employees would not necessarily get jobs at the entity hired to service future direct federal loans originated there.
Duncan was also asked why the administration is pushing to approve the elimination of FFEL through budget reconciliation, which lowers the vote threshold required to pass the budget and eliminates the ability of lawmakers to introduce amendments to it. But Duncan dismissed concerns voiced by a reporter that reconciliation might short-change a broader, more deliberative discussion.
"I just feel a huge sense of urgency around this," he said. "If we don't act, we have many, many smart, bright students around the country today who won't go to college because of the tremendous difficulty their families are experiencing financially."
