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UPDATE: Budget Would Seek to Eliminate Subsidized Loans by 2010

The fiscal year 2010 budget proposal being released today by President Barack Obama would seek to eliminate the Federal Family Education Loan Program by 2010. The program subsidizes private lenders who make government-backed college loans. Its elimination would be a huge change, the equivalent of a nuclear bomb going off in the higher education loan world.

I'm guessing that the new administration is hoping the federal government's direct lending program, in which students borrow from the U.S. Treasury, rather than allowing subsidized lenders to do the job, will step up to take its place. After 2010, all loans would originate through that program.

UPDATE: In another big bombshell, the budget would seek to make the Pell Grant program mandatory, which would mean that it wouldn't be subject to the whims of the appropriations process. This is just about the best thing that can happen to any federal program. School districts have been trying to get mandatory funding for special education for decades, with no success.

The subsidized loan program came under fire recently because of mismanagement and conflict of interest problems.

President Barack Obama did not highlight the major loan change in a press conference today at which he announced his budget outline. But he did say that his fiscal 2010 budget would build on the investments in the recently passed economic stimulus law, in terms of education.

This budget supports the historic investment in education we made as part of the recovery plan by matching new resources with new reform. We want to create incentives for better teacher performance and pathways for advancement. We want to reward success in the classroom. And we'll invest in innovative initiatives that will help schools meet high standards and close achievement gaps, preparing students for the high-paying jobs of tomorrow -- but also helping them fulfill their God-given potential.

Obama's top budget aide, Peter Orszag, said in a briefing today that the budget would build on the investments in early education in the stimulus. Read a three-page summary of the education budget proposals here. You'll see there's also a new $2.5 billion program to support innovative state efforts to help low-income students complete college.

And he mentioned that the fiscal 2010 budget would eliminate an ineffective mentoring program in the U.S. Department of Education. Wonder where else Obama used his scalpel?

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