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Obama Touts Plan to Change College Loan System

President Obama on Friday renewed his call for the government to stop backing private loans to college students and replace them with direct financial aid to young people.

Obama said the surest test for success in the challenging economy is a college degree or other training, yet access to higher education continues to shrink as costs rise. To reverse that, the president repeated his campaign proposal that would eliminate the Federal Family Education Loan program that costs taxpayers $15 million each day.

The administration has pushed for federal financial aid to go directly to students, not to banks that lend money to students. Obama said he wants to eliminate the "middle men" lenders that he says add inefficiency to the system -- a move he said could open classrooms to 8.5 million more students.

The president said that by the end of the next decade, he wants to see America have "the highest percentage of college graduates" anywhere in the world. Obama said the country "used to have that" edge, but doesn't have it any longer.

The president acknowledged that the proposal was sure to find critics, given the financial stakes. Obama warned banks and lenders were "gearing up for battle. So am I."

The cost of higher education "has never been higher," said Obama, joined at the White House by college student Stephanie Stevenson of Baltimore, Md., a University of Maryland student, and her mother, Yvonne Thomas. Obama said skyrocketing tuition costs have put "new pressures" on families already hard-pressed in economically difficult times.

"There are few things as fundamental to the American dream or as essential as a good education," he said, adding that "the stakes could not be higher for young people like Stephanie" at a time of growing international competitiveness.

Yet, Obama said, "we have a student loan system where we are giving lenders billions of dollars in wasteful subsidies." He called the system "a paradox of American life" that threatens to widen the gap between the haves and have-nots.

Obama wants to end the decades-old, dual system the federal government uses to advance loans to students to pay for college.

Under that system, students at some colleges borrow directly from the government, while others get loans from banks, non-profits or state agencies who in turn receive subsidies from Washington.

The president's proposal would switch the federal student loan system entirely to direct lending from the government.

Obama has claimed that the change would save at least $48 billion over the next 10 years -- money that could be funneled to student aid. But Republicans are concerned about the costs of that and even some Democratic lawmakers oppose the switch.

Higher education groups are divided. They welcome more money for student aid, but about two-thirds of colleges use the subsidized lending program and some want to keep the program.

Lenders are also fiercely lobbying against the proposal, which would end a historically lucrative business