Student Loan - There is currently a good schism occurring within the student loan business - a war if you'll. The question is how funds are going to be allotted and who can profit.
For such a noble purpose, the scholar loan business has actually had an overtone of negativity. it's a highly profitable business to be in and competition has resulted in several scandals. The question now's whether or not the whole system has to readjusted or not. within the opinion of President Obama, it does. The banks within the business feel the other.
For such a noble purpose, the scholar loan business has actually had an overtone of negativity. it's a highly profitable business to be in and competition has resulted in several scandals. The question now's whether or not the whole system has to readjusted or not. within the opinion of President Obama, it does. The banks within the business feel the other.
To understand the war underway on student loans, you first have to understand a key factor in how the government promotes their use. As with many financial tools, the government does not primarily give money directly to students. It does a bit, but mostly subsidies the lenders to make sure there is money on the market. This is a hugely profitable situation for lenders.
President Obama has noted that it ends up costing taxpayers far more to use this middleman process versus just making direct loans to students. Some estimates put the cost of using lenders at roughly $9 per $100 loaned versus a cost of less than $2 per $100 lent with direct loans. With this in mind, President Obama wants to end subsidies to lenders and reconfigure the scenario to a situation where loans are made directly to students.
As you can imagine, the banks and lenders are up in arms over this. They face the loss of their golden goose and are hiring lobbyist right and left to fight the measure. There is really no good reason for the subsidies, so the banks have fallen back on the claim that the new approach will cost jobs. Sallie Mae went so far as to pull back 2,000 jobs it had sent overseas to show how concerned it was. Of course, the company didn't really get into the fact it had sent those jobs overseas in the first place, but there you are!
The student loan plan of President Obama is expected to save between $90 and $200 billion dollars if he can get it passed. That money is earmarked to be converted into direct loans to students. In short, the question is whether we should give the money to the banks or to the students. I know where I come down on that one.
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