Saying he feels their pain, President Obama today reached out to families struggling to pay college bills, highlighting his plan to revamp student loan programs to cut out private middlemen.
Obama wants to end the private Federal Family Education Loans program that the White House says costs taxpayers an unnecessary $5 billion a year by using private firms as brokers.
"That is a premium we can no longer afford," he said, saying the system is "rigged" to give profits to "special interests" without any risk.
He told reporters that "wasteful subsidies" are worsening the paradox facing the country: a college education is more important than ever, but the cost of attending is also higher than ever.
"The stakes could not be higher," he said.
Obama said he wants to boost the percentage of Americans attending college to the world's highest again, and a key part of that is reforming the student loan system.
He acknowledged that private loan companies vehemently oppose the change. "They are gearing up for battle," he said. "So am I."
(His full remarks are below, along with a White House summary of his proposal.)
The private student loan industry has also been beset by allegations of kickbacks to college officials to steer students to the loans. Investigations by Congress and New York Attorney General Andrew Cuomo found that some lenders had secret deals to give colleges or their staffs consulting fees, company shares, and other perks.
OBAMA'S REMARKS
Thank you. That was excellent -- we might have to run her for something some day. (Laughter.) That was terrific. Thank you, Stephanie. I want to also introduce Yvonne Thomas, who is Stephanie's proud mother. And we appreciate everything that you've done. And Stephanie's father, Albert, is around here as well.
OBAMA'S PROPOSAL
There are few things as fundamental to the American Dream or as essential for America's success as a good education. This has never been more true than it is today. At a time when our children are competing with kids in China and India, the best job qualification you can have is a college degree or advanced training. If you do have that kind of education, then you're well prepared for the future -- because half of the fastest growing jobs in America require a Bachelor's degree or more. And if you don't have a college degree, you're more than twice as likely to be unemployed as somebody who does. So the stakes could not be higher for young people like Stephanie.
And yet, in a paradox of American life, at the very moment it's never been more important to have a quality higher education, the cost of that kind of that kind of education has never been higher. Over the past few decades, the cost of tuition at private colleges has more than doubled, while costs at public institutions have nearly tripled. Compounding the problem, tuition has grown ten times faster than a typical family's income, putting new pressure on families that are already strained and pricing far too many students out of college altogether. Yet, we have a student loan system where we're giving lenders billions of dollars in wasteful subsidies that could be used to make college more affordable for all Americans.
This trend -- a trend where a quality higher education slips out of reach for ordinary Americans -- threatens the dream of opportunity that is America's promise to all its citizens. It threatens to widen the gap between the haves and the have-nots. And it threatens to undercut America's competitiveness -- because America cannot lead in the 21st century unless we have the best educated, most competitive workforce in the world. And that's the kind of workforce -- and the kind of citizenry -- to which we should be committed.
And that's why we have taken and proposed a number of sweeping steps over our first few months in office -- steps that amount to the most significant efforts to open the doors of college to middle-class Americans since the GI Bill. Millions of working families are now eligible for a $2,500 annual tax credit that will help them pay the cost of tuition; a tax credit that will cover the full cost of tuition at most of the two-year community colleges that are some of the great and undervalued assets of our education system.
We're also bringing much needed reform to the Pell Grants that roughly 30 percent of students rely on to put themselves through college. Today's Pell Grants cover less than half as much tuition at a four-year public institution as they did a few decades ago. And that's why we are adding $500 to the grants for this academic year, and raising the maximum Pell Grant to $5,550 next year, easing the financial burden on students and families.
And we are also changing the way the value of a Pell Grant is determined. Today, that value is set by Congress on an annual basis, making it vulnerable to Washington politics. What we are doing is pegging Pell Grants to a fixed rate above inflation so that these grants don't cover less and less as families' costs go up and up. And this will help prevent a projected shortfall in Pell Grant funding in a few years that could rob many of our poorest students of their dream of attending college. It will help ensure that Pell Grants are a source of funding that students can count on each and every year.
Now, while our nation has a responsibility to make college more affordable, colleges and universities have a responsibility to control spiraling costs. And that will require hard choices about where to save and where to spend. So I challenge state, college and university leaders to put affordability front and center as they chart a path forward. I challenge them to follow the example of the University of Maryland, where they're streamlining administrative costs, cutting energy costs, using faculty more effectively, making it possible for them to freeze tuition for students and for families.
At the same time, we're also working to modernize and expand the Perkins Loan Program by changing a system where colleges are rewarded for raising tuition, and instead, rewarding them for making college more affordable.
Now just as we've opened the doors of college to every American, we also have to ensure that more students can walk through them. And that's why I've challenged every American to commit to at least one year of higher education or advanced training -- because by the end of the next decade, I want to see America have the highest proportion of college graduates in the world. We used to have that; we no longer do. We are going to get that lead back.
And to help us achieve that goal, we are investing $2.5 billion to identify and support innovative initiatives that have a record of success in boosting enrollment and graduation rates -- initiatives like the IBEST program in Washington state that combines basic and career skills classes to ensure that students not only complete college, but are competitive in the workforce from the moment they graduate.
And to help cover the cost of all this, we're going to eliminate waste, reduce inefficiency, and cut what we don't need to pay for what we do. And that includes reforming our student loan system so that it better serves the people it's supposed to serve -- our students.
Right now, there are two main kinds of federal loans. First, there are Direct Loans. These are loans where tax dollars go directly to help students pay for tuition, not to pad the profits of private lenders. The other kinds of loans are Federal Family Education Loans. These loans, known as FFEL loans, make up the majority of all college loans. Under the FFEL program, lenders get a big government subsidy with every loan they make. And these loans are then guaranteed with taxpayer money, which means that if a student defaults, a lender can get back almost all of its money from our government.
And there's only one real difference between Direct Loans and private FFEL loans. It's that under the FFEL program, taxpayers are paying banks a premium to act as middlemen -- a premium that costs the American people billions of dollars each year. Well, that's a premium we cannot afford -- not when we could be reinvesting that same money in our students, in our economy, and in our country.
And that's why I've called for ending the FFEL program and shifting entirely over to Direct Loans. It's a step that even a conservative estimate predicts will save tens of billions of tax dollars over the next ten years. According to the Congressional Budget Office, the money we could save by cutting out the middleman would pay for 95 percent of our plan to guarantee growing Pell Grants. This would help ensure that every American, everywhere in this country, can out-compete any worker, anywhere in the world.
In the end, this is not about growing the size of government or relying on the free market -- because it's not a free market when we have a student loan system that's rigged to reward private lenders without any risk. 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 eight and a half million more students. I think most of us would agree on what the right answer is.
Now, some of you have probably seen how this proposal was greeted by the special interests. The banks and the lenders who have reaped a windfall from these subsidies have mobilized an army of lobbyists to try to keep things the way they are. They are gearing up for battle. So am I. They will fight for their special interests. I will fight for Stephanie, and other American students and their families. And for those who care about America's future, this is a battle we can't afford to lose.
So I am looking forward to having this debate in the days and weeks ahead. And I am confident that if all of us here in Washington do what's in the best interests of the people we represent, and reinvest not only in opening the doors of college but making sure students can walk through them, then we will help deliver the change that the American people sent us here to make. We will help Americans fulfill their promise as individuals. And we will help America fulfill its promise as a nation.
So thank you very much. And thank you, Stephanie. And thank you, Stephanie's mom.
All right. Thanks, guys.
Reforming Student Loans to Make College Affordable
“We will provide the support necessary for you to complete college and meet a new goal: by 2020, America will once again have the highest proportion of college graduates in the world.”
-- President Barack Obama, February 24, 2009
America’s future economic strength depends on the quality of our education. Countries that out-teach us today will out-compete us tomorrow. America once had one of the most educated workforces in the world, but it has now slipped to the middle of the pack. Only 38 percent of young workers have a college degree, a lower percentage than nine other countries and no higher than a generation ago. At the same time, we do not provide enough financial aid, partly because the student loan program spends $5 billion more than necessary subsidizing banks and other lenders to make student loans.
Today, President Obama met with a family struggling to afford the cost of college and released a new analysis of the impact of his plans to increase student aid. He will take on the special interests to eliminate wasteful and unreliable guaranteed student loans and invest more in helping students succeed in college and complete their degree. And he will make a historic investment in college affordability: together, the American Recovery and Reinvestment Act (ARRA) and the President’s Budget provide about $200 billion in Pell Grant scholarships and tax credits over the next decade.
· Reforming Student Loans: The guaranteed student loan program pays banks and other lenders a guaranteed rate of return and reimburses them for defaults, giving them large profits set by the political process rather than won in a competitive marketplace. The Obama-Biden Administration will expand the alternative Direct Loan program, which is administered by private sector companies selected through a competitive process and paid based upon performance. Direct loans have essentially the same terms for students and are more reliable and efficient. They will save $48 billion over the next decade according to the Office of Management and Budget, which will be reinvested in Pell Grant scholarships for students.
· Restoring Pell Grants to a Strong Foundation for Student Aid: The value of Pell Grants have fallen from 77 percent of the cost of attending a public university to 33 percent over the past three decades. The ARRA invested $17 billion, making it possible to increase Pell by $619 for 7 million students. But these funding increases are only temporary, and without additional resources the value of the maximum Pell Grant will fall by $1,400 in 2011. President Obama is committed to a strong, reliable Pell Grant program. He will make Pell an entitlement, provide $116 billion over the next decade to prevent any drop in the size of Pell Grants, ensure that they continues to grow faster than inflation, and eliminate the frequent budget shortfalls that have plagued the program.
· Cut Taxes on College Tuition: The ARRA created the American Opportunity Tax Credit, which will give millions of families up to $2,500 each to help pay for college. The credit was also expanded to help families too poor to owe income taxes. But the credit expires at the end of 2010. The President’s Budget would make it permanent.
· Make a New Commitment to College Access and Completion: Only 65 percent of students starting at four-year colleges – and 38 percent of students starting at two-year colleges – earn a degree within six years. The President’s Budget includes a five-year, $2.5 billion fund to improve college access and help America’s colleges and universities graduate more students. The fund will identify, test, and promote what works in boosting college enrollment and persistence.
