President Obama has a plan to move our money from banks to students.
Every year, taxpayers subsidize student loans to the tune of $9 billion. Banks service these loans, collect the debt, keep the interest, and turn a profit. When borrowers default on their loans, taxpayers foot the bill, and banks still reap the interest.
It's a great deal for banks and a terrible one for taxpayers.
The president's student aid reform plan will save tens of billions over the next decade. We'll use these savings to make college more affordable for the next generation of engineers, teachers, and scientists who will become the backbone of the new economy.
The House has passed the Student Aid and Fiscal Responsibility Act. This legislation will end bank subsidies and invest in students directly. The Senate is still working on its bill.
The House bill will increase Pell Grant scholarships to $5,710 in the next fiscal year. It will guarantee that Pell Grants keep pace with the rate of inflation. It will eliminate unnecessary questions from the financial aid forms, making it faster and easier for students to qualify for federal grants and loans.
This legislation also promises an historic investment in community colleges, helping these essential schools take Americans from all backgrounds and equip them to succeed. Finally, it will improve the quality of early learning programs, which are critical to America's educational success.
All of this will be possible by eliminating the student loan subsidies. We will end the loans under the Federal Family Education Program and make them directly to students -- just as economist Milton Friedman proposed 50 years ago, and just as the Department of Education has been doing since 1993 through the Direct Loan Program.
For future lending, we have hired experienced companies to service all new student loans and collect them for us. We selected these companies through a competitive process.
The shift is underway, and it is proving to be a remarkably smooth transition. In the past two years, our Department has issued more than $50 billion in student loans. Over 2,300 colleges and universities participate in the direct lending program -- an increase of 1,300 over the past three years.
It's time to do what's right for taxpayers -- move our money from bankers to students.