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Taking On the Lending Industry: Obama’s Grand Plans for Education

President Barack Obama wants the United States to have the highest proportion of college graduates in the world by 2020. Why would he place such great emphasis on such a high goal and is it achievable? We have learned than when countries have successfully lifted themselves out of recessions, their investment in education has had the greatest impact. It’s not a new idea; a highly educated workforce will enable the United States to create and retain highly skilled, high paying jobs. How do we get there? By making college more affordable to more high school graduates. The major reason students don’t go to college is not they are not qualified, it is that they cannot afford the cost. The best way to make college more accessible is to change the student loan program by eliminating the middlemen: the banks and other financial aid services who take a hefty cut. When I was Deputy Secretary of Education in the Clinton administration I helped write the direct student loan legislation. We proved that there were substantial cost savings for students by eliminating the substantial fees that private lenders receive. And equally important is the fact that the lending process was simplified as a result of direct lending. Education Secretary Arne Duncan believes that taxpayers could save four billion dollars a year if the subsidized student loan program were eliminated and replaced by direct lending. He is ready to take on the industry. The lending institutions won’t go away without a fight.  In 1993, we established direct lending for a portion of the student loan program. The banks and lending institutions fought it tooth and nail because this is a highly profitable business. The reason the direct lending program finally became law was because it was placed in the Omnibus Appropriations bill where it could not be vetoed without vetoing the entire federal budget. Direct lending is still on the books, but the Bush administration turned it into a stepchild, almost starving it to death. They ceded ground to the pressre from for-profit lending agencies who saw direct lending as a tough competitor. One of their arguments against the federal government running the program is that the education is not capable of running such a large program.  The answer is the education department would have non-government groups compete for contracts. The result would be lower costs and better service. I spent much of my career in the U.S Department of Education working on student loans. I can testify that direct lending works, it saves money, and is easier for students to understand. President Obama has taken another important step to make college more accessible to more high school graduates. He proposes to increase funding for Pell Grants up to $5,500 and asked for $2.5 billion in grants for low-income students to complete college. At a time when so many students graduate with overwhelming debt burdens, outright grants are more important than ever. Today, only half of the students enrolled in college graduate. Most drop out because their families can’t afford to pay the bills, a crises that will intensify during this recession. Congress may balk at these hefty increases and changes in student financial aid. An education has always been, and will continue to be, the best investment we can make. The pay back is not only in dollars and cents; the greatest reward is that it enables more young women and men to reach her or his full potential. That not only enriches the individual student, but also the family, the larger community and our nation. The greatest investment our country made in higher education was when we passed the G.I. bill in 1944.  There is no argument that as a result an entire generation was given access to higher education. One result was a booming post-war economy. Today, we can do no less.


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