Direct Loan Program

Vice President Joe Biden intends to make higher education a reality for more young people, the Associated Press reports, in part by closing the gap between families’ incomes and rising college costs (“Biden Wants to Make Higher Ed More Affordable,” USA Today, April 18, 2009).

At a town hall–style meeting he hosted in St. Louis Biden told about 300 people that he’ll be asking the Treasury Department to figure out how to make college savings plans more effective and more reliable.

“We’re going to make a series of investments, investments in our families and our students,” he said, highlighting the administration’s efforts to improve tax breaks for families and increase need-based grants for low-and middle-income families.



White House Taps Existing Programs to Increase College Affordability

Since so many families save for college using tax-deferred 529 savings plans, which allow families to set aside funds to cover future tuition expenses, fees, books, and supplies, the Obama administration is examining a program that would allow families to take out low-interest loans against their 529 plans to help them cover college costs.

Obama has already increased funding for the need-based federal Pell Grant program, which helps low-income students afford school, but Biden said the Obama administration also wants to ensure continued Pell Grant funding by setting up the program to be automatically subsidized each year.

The government is also considering extending The American Opportunity Tax Credit beyond 2010, which allows families to claim a $2,500 tax credit for college expenses for up to four years.

But by far the most sweeping proposal from the Obama administration, which has drawn fierce criticism from leaders in the student loan industry, is the suggested cancelation of the federally funded student loan program.

Lenders say that cancelling the program will eliminate families’ option to choose from a variety of private lenders and federal student loan incentives and, instead, require them to borrow federal student loans through government’s Direct Loan Program.

Biden alleges that the move to cancel the federal student loan program would result in up to $94 billion in savings to the federal government over the next 10 years, which he said, “We can take … and reinvest … in more loans, more grants and more access to college.”