Lawmaker Proposing End to Student-Loan Subsidies, Backing Obama

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Lawmaker Proposing End to Student-Loan Subsidies, Backing Obama

By Molly Peterson


July 15 (Bloomberg) -- House Education Committee Chairman George Miller will introduce legislation today that would end federal subsidies for student-loan providers, backing President Barack Obama’s plan.

Lenders such as Sallie Mae failed to persuade Miller, a California Democrat, to let them continue marketing federal student loans, a House Democratic committee aide said yesterday on a conference call with reporters. The aide asked not to be identified because the legislation hadn’t yet been introduced.

Miller favors Obama’s plan in part because it would save $87 billion, which would be $15 billion more than savings in an alternative proposal from a coalition of student-loan providers, the aide said. The group, including Sallie Mae, Citigroup Inc.’s Student Loan Corp. and Nelnet Inc., said last week that their proposal would result in savings similar to Obama’s plan.

Obama and Miller seek to end a 16-year-old arrangement under which the government runs competing college loan programs. The 43-year-old Federal Family Education Loan Program subsidizes and guarantees loans made by private lenders. A second program, created in 1993, enables the Education Department to make loans directly to students.

Miller’s plan, like Obama’s proposal, would eliminate the loan-guarantee program and switch all new federal loans to the direct-lending program, according to a committee fact sheet. Both plans would let companies compete for loan-servicing tasks such as processing payments and collecting on defaulted loans.

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