WASHINGTON – As part of a pledge to make college more affordable, Democrat presidential candidate Barack Obama wants to eliminate federal subsidies for banks that provide student loans.
The Illinois senator planned to outline his proposal in a conference call with reporters Tuesday.
Currently, students can receive loans directly from the Education Department or from banks whose loan programs are federally subsidized to ensure a profitable return. Both programs charge similar interest rates and fees.
Obama favors eliminating the bank subsidy program, which analysts believe cost taxpayers about $6 billion per year. The savings would be redirected to provide loans to more students.
"The system needs to be fixed," he said in a statement issued before the conference call. "We shouldn't be providing billions in taxpayer-funded giveaways to private banks. We should be providing an affordable, accessible college education to every American."
Obama's plan closely resembles a proposal already announced by rival Democrat John Edwards. His "College for All" plan would eliminate the bank subsidy program and allow all students to borrow directly from the Education Department.
With the cost of a college education already prohibitive for many families, Democratic presidential candidates have begun offering proposals to ease the price crunch.
Front-runner Hillary Rodham Clinton has suggested a "student borrower bill of rights" that sets loan payments as a percentage of income and keeps fees and interest rates reasonable.
Among other candidates for the Democratic presidential nomination, Delaware Sen. Joe Biden has proposed increasing the tax deduction for tuition payments and Connecticut Sen. Chris Dodd would boost federal assistance to students and increase competition for lower interest rates on student loans.
Biden also would expand Pell grants for low-income families to cover the average tuition at public colleges and universities.
The proposals have drawn notice in light of an investigation by New York Attorney General Andrew Cuomo that has exposed questionable financial arrangements between lending companies and universities. The investigation uncovered evidence that some colleges received a percentage of loan proceeds from lenders who were given preferred status by the schools.
Cuomo also has accused the Education Department of being asleep at the switch in regulating the $85 billion student loan industry.