Obama Hosts Cyber Town Hall

In addition, what we are also doing is to try to make the student loan and student grant programs that are already in place work better. So just to give you one example, right now a lot of the student loan programs run through banks, but a lot of them go directly to students from the government — so-called direct loans. The banks make several billion dollars’ worth of profits off managing these student loans, which would be okay except for the fact that these loans are guaranteed by the federal government.

So, the reason banks are able to make money lending you is because — that there’s some risk that you might not pay it back, plus you’re giving up the use of your money for — they’re giving up the use of their money for a while. If, on the other hand, this is the government’s money and they’re just a pass-through, it doesn’t seem very sensible that banks should be making money that way.

So what we’ve said is let’s make all these direct loans, as opposed to having bank intermediaries or — and not just banks — financial services organizations. They can make profits on other things, but let’s not have them make profits on this. Let’s take those billions of dollars, and that then allows us to either lower student loan rates or expand grants.

And one of the things that we want to do is on the Pell grant program, for example. We want to increase the amount of the Pell grant so that it catches up with inflation and we want to — we want more young people to be eligible for the Pell grant program. And that’s particularly important because anybody who’s financed their educations understands that grants are a lot better than loans. And when I was going to college, about — and this was typical for I think college students — the average student who needed financial assistance, about 70 percent of it came in grants and about 30 percent of it came in loans. Today, it’s reversed: 30 percent come in grants; 70 percent come in loans. And so students are loaded up with $20,000, $30,000, $40,000 worth of debt — and this is just for their undergraduate education; that doesn’t even start counting their higher ed.

And if you come out of college with $50,000 worth of debt, it’s hard for you to then start making a decision about wanting to be a teacher, or wanting to go into social work, or wanting to be a scientist and research to find the next innovation. You may decide, well, the only thing I can do is to work on Wall Street or work in a big corporation that’s not doing cutting-edge research.

And we want people — all that’s fine, I mean, those are good career choices — but we want our young people to have more flexibility, not to mention we want them to be able to — if they choose to get married, to be able to buy a home and start a family without already having essentially a mortgage that they’re carrying with them out of college, before they even buy a house.

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