By Arne Duncan
WASHINGTON -- For decades, bankers have gotten a free ride from American taxpayers.
The U.S. Department of Education currently subsidizes student loans to the tune of $9 billion a year. Banks service these loans, collect the debt, keep the interest and turn a profit.
When borrowers default on their loans, taxpayers foot the bill. But banks still reap billions in profits and pay their executives millions of dollars.
President Barack Obama is ready to put an end to that deal.
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Based on the president's proposal, the U.S. House has passed the Student Aid and Fiscal Responsibility Act. This legislation will end bank subsidies and invest in students directly. The Senate still is working on its version of the legislation.
The House bill will increase Pell Grant scholarships to $5,710 in the next fiscal year -- almost $1,500 more than when the president took office. North Dakota will get an additional $34.7 million in federal Pell Grant funding, ensuring that 4,724 more North Dakota students will have access to a college education.
The House bill 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, offering access to a college education for Americans from all backgrounds and equipping them to succeed.
Finally, it will improve the quality of early learning programs, which are critical to America's educational success.
These changes are an essential part of our plans to expand college access and relieve student borrowers of an impossible burden of debt.
The president's student aid reform plan will let students borrow directly from the federal government, saving tens of billions of dollars over the next decade.
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These savings will be made possible by eliminating our current set of student loan subsidies, where borrowers and taxpayers are chained to corporate profits.
We will discontinue loans under the Federal Family Education Program and instead make them to students directly -- 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. We selected these companies through a competitive process.
All of the jobs will be based in the U.S. By contrast, Sallie Mae -- the biggest student loan company -- outsourced thousands of American jobs overseas in 2007 to further increase profits.
It recently announced plans to bring 3,400 of those jobs back to the U.S. to compete for our loan-servicing business because our contract requires U.S.-based loan-processing operations.
In the past two years, our department has issued more than $50 billion in student loans. More than 2,300 colleges and universities participate in the direct lending program -- an increase of 1,300 over the past three years.
Schools that have made the switch to Direct Lending have reported a remarkably smooth transition. All told, 85 percent of higher education institutions either are participating in the Direct Loan program or actively are taking steps to do so.
Direct lending is a proven success. We cannot continue to saddle our children with unnecessary student debts at taxpayer expense.
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We need to educate our way to a better economy, and we can't do that by padding bank profits and executive salaries. It's time to cut out the middlemen on Wall Street and support the students on Main Street.
Duncan is U.S. secretary of education.
