Student lenders whine about Obama's plan to eliminate middlemen

President Obama has been championing the idea of eliminating banks as middlemen from the federal student loan programs since early in his Presidential campaign, and now that he seems poised to get his way, the banks are having an absolute conniption.

Obama's plan is to make all federal student loans federal direct loans, eliminating the FFEL program that subsidizes loans made by private institutions so that they are comparable to the direct loans. Obama claims that his plan could save as much as $90 billion over the next 10 years by streamlining the process and eliminating needless profits for powerful financial institutions.

Now some of the most powerful (and slimiest) financial institutions in the country have put forth their own proposal to water down Obama's plan and The Wall Street Journalreports (subscription required) without a hint of irony that "Critics have questioned the amount of savings it would generate and said it would needlessly end an income stream for banks at a time when they are suffering through a severe economic downturn."

Geez. It's almost like these unnamed critics think that the role of the government is to prop up financial institutions to help them recover from a disaster they created. Oh wait ...

The other claim that the banks make is that participation in the federal student loan programs allows them to cross-market other products to college students. This is exactly why we should eliminate these programs immediately. Banks are loading students with credit cards and overdraft fees and maybe there's nothing we can do to stop that. But the federal government definitely shouldn't be providing them with the relationships that form the foundation for decades of exploitation.