President Obama Plans Student Loan Overhaul for 2010

No more kickbacks

Financial institutions that enjoy entitlements for lending to students may have met their Waterloo if President Obama has his way.

Kevin Drawbaugh reports for Reuters UK that the president’s 2010 federal budget includes a proposal that would completely restructure student lending as it stands. The share price of large-scale student loan originators like Sallie Mae, Citigroup, JP Morgan Chase and Bank of America would be undercut. Obama wants to move most student lending into the direct-loan program of the U.S. Education Department.

It would save taxpayers $4 billion a year

The proposal is currently up for approval by Congress. It doesn’t set a clear timetable for the phase-out, but investors in the lenders are understandably nervous. Charles Gabriel of Capital Alpha Partners notes that investors won’t know until late March or early April for full details. Yet it seems clear that the days of “excessive subsidies” and kickbacks to referring universities may soon be a thing of the past. At the very least, the student loan market will be an uphill battle for old-guard lenders.

Bad news, banks

According to Drawbaugh, some student loan companies have considered alternative options to the student loan market. Profits are down due to a decrease in federal lender subsidies, and the current credit crunch has caused waves of taxpayers to bail out of interactions with the major banks. The government got involved in 2008 so that availability of funds who remain on a stable level for upcoming waves of college students. ... click here to read the rest of the article titled "President Obama Plans Student Loan Overhaul for 2010"