Proponents of the plan to cut subsidies to private lenders expect this to increase the efficiency of student loans. They argue that subsidized private lenders make huge profits off loans while the federal government is left paying for loan defaults. President Obama describes the new plan as “putting students ahead of lenders by eliminating wasteful student loan subsidies that cost taxpayers billions each year.”
Opponents have responded that private lenders are needed to give students options. During an NPR interview, Jack Remondi, the Chief Financial Officer for lender Sallie Mae, said “choice is an important component of this program.” By eliminating choices, the opposition fears that competition would also be eliminated between lenders, causing an increase in rates and a less efficient system overall.
In spite of the poor economic environment, loan providers have explained that the cuts would not cause significant job loss throughout the loan industry. Earlier this year Sallie Mae recently brought 2,000 overseas jobs back to America. The official justification was support for the American worker but some have drawn a connection to the return of jobs with threats of federal cuts.

Sallie Mae has begun promoting for a mix between federal and private loans. This plan would have private loan providers originally providing loans to students. The federal government would then buy control of these loans from the private companies. A campaign of lobbying has begun to promote this alternative proposal.

Democratic lawmakers have generally supported President Obama’s proposal to cut subsidies to private loan providers. Republicans, however, have been wary of the programs, citing the increased burden placed on the federal government as loans shift to it from private loan services.

Student loans are also being affected by the current economic environment. On Tuesday, April 21, Treasury Secretary Timothy F. Geithner spoke to a Congressional panel saying that despite government intervention, banks are very strict about to whom they give loans. He continued by saying that results of the program have been “mixed” since some types of loans are challenging to come by.
Student loans are one of the areas being affected by the restricted flow of credit. Lending agencies are also wary of lending due to the increasing rate of students defaulting on loans. The current rate of 6.9 percent, as reported by the U.S. Department of Education, is the highest it has been in the last 10 years.
With two out of three college students graduating with debt and tuition continuing to rise, this is an issue that will greatly affect America’s next generation. If change does come, will students be shedding a tear for private loan providers? Justin Eisenstadt, a sophomore at UMBC, will not, since he considers student loans to be the “biggest scam in the nation’s history.” The outcome of private loan providers is undetermined while Congress hashes out a final budget.