WASHINGTON (Reuters) — The $85-billion U.S. college student loan business reeled Thursday from a proposal in President Barack Obama’s 2010 federal budget that would axe the giant federally guaranteed student loan program.
In a major shift that severely undercut shares in top student lender Sallie Mae, Obama’s budget outline called for moving most student lending into the direct-loan program run by the U.S. Education Department.
The proposal is subject to review by Congress and possible changes. If adopted, the White House said it would save taxpayers more than $4 billion a year and end “entitlements for financial institutions that lend to students.”
The president’s plan sets up a clash between congressional Democrats, who praised it, and private-sector student lenders, once a powerful Washington, D.C., lobbying force brought low in recent years by scandal and the financial crisis.
Some lenders have pulled back from student loans, where profits have thinned due to cuts in federal lender subsidies, while a deep credit crunch has resulted in massive taxpayer bailouts for major banks. The government began intervening in the student loan market last year to ensure availability of financing for college students.
If you enjoyed this post, make sure you subscribe to my RSS feed!