| There is currently a great schism going on in the | | | | $100 lent with direct loans. With this in mind, President |
| student loan industry - a war if you will. The question | | | | Obama wants to end subsidies to lenders and |
| is how funds will be allocated and who will benefit. | | | | reconfigure the scenario to a situation where loans |
| For such a noble purpose, the student loan industry | | | | are made directly to students. |
| has certainly had an overtone of negativity. It is a | | | | As you can imagine, the banks and lenders are up in |
| highly profitable business to be in and competition has | | | | arms over this. They face the loss of their golden |
| resulted in many scandals. The question now is | | | | goose and are hiring lobbyist right and left to fight |
| whether the entire system needs to readjusted or | | | | the measure. There is really no good reason for the |
| not. In the opinion of President Obama, it does. The | | | | subsidies, so the banks have fallen back on the claim |
| banks in the industry feel the opposite. | | | | that the new approach will cost jobs. Sallie Mae went |
| To understand the war underway on student loans, | | | | so far as to pull back 2,000 jobs it had sent overseas |
| you first have to understand a key factor in how the | | | | to show how concerned it was. Of course, the |
| government promotes their use. As with many | | | | company didn't really get into the fact it had sent |
| financial tools, the government does not primarily give | | | | those jobs overseas in the first place, but there you |
| money directly to students. It does a bit, but mostly | | | | are! |
| subsidies the lenders to make sure there is money on | | | | The student loan plan of President Obama is |
| the market. This is a hugely profitable situation for | | | | expected to save between $90 and $200 billion |
| lenders. | | | | dollars if he can get it passed. That money is |
| President Obama has noted that it ends up costing | | | | earmarked to be converted into direct loans to |
| taxpayers far more to use this middleman process | | | | students. In short, the question is whether we should |
| versus just making direct loans to students. Some | | | | give the money to the banks or to the students. I |
| estimates put the cost of using lenders at roughly $9 | | | | know where I come down on that one. |
| per $100 loaned versus a cost of less than $2 per | | | | |