Battle Brews on Obama College-Lending Proposal

President Barack Obama’s proposals to significantly reshape the two main federal college-access programs—Pell Grants for low-income students, and higher education loans—are generating debate in Congress and in the education community.

Mr. Obama is seeking to scrap the Federal Family Education Loan Program, or FFELP, under which the government subsidizes private lenders to make federal student loans. ( "President's Education Aims Aired," Feb. 28, 2009.)

Under his plan, which is part of the administration’s proposed fiscal 2010 budget, all loans beginning in July 2010 would originate under the government’s direct-lending program, in which students borrow from the U.S. Treasury. The interest rates for both programs are generally set by Congress. Subsidized undergraduate loans will be offered at an interest rate of 5.6 percent beginning July 1 of this year. Right now, colleges can choose...