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Obama's student loan debt-relief plan: Too good to be true?

President Obama has said he will help ease student loan debt, claiming he doesn't even need Congress to do it. It seems the Education Department has the cash to back him up.

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Congress directed the Education Department to use that savings to expand Pell grants for low-and moderate income students to attend college. But many House Republicans who still oppose the move they say it has made the Department of Education one of the largest banks in the nation, largely unaccountable to Congress.

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“This is another example of the Obama administration making changes to federal education policy behind closed doors,” said GOP committee spokeswoman Alexandra Sollberger in an e-mail. “We are disappointed that the Department of Education chose not to engage committee members prior to announcing this plan to the press.”

Republican critics also note that the Education Department charges 6.8 percent for loans that cost much less, “creating a pretty big slush fund for the government,” said Rep. John Kline (R) of Minnesota, who chairs the House Education and Workforce Committee, at Tuesday’s hearing.

He tabbed federal borrowing for the program “at less than 1 percent” – yielding a large profit.

Education Department officials dispute that view. “Right now Direct Loans reduce the deficit,” says Education Department spokeswoman Jane Glickman. “I wouldn’t call it slush.”

The 10-year interest rate is dictated to the department by the White House's Office of Management and Budget (OMB), added Ms. Glickman in an e-mail. “In yesterday’s market, the 10-year rate was between 2 and 2.5. In the OMB projections, it is more like 3 for 2011.

The burden of some $1 trillion in outstanding student loans – up from $500 billion just five years ago – is a hot issue in the Occupy Wall Street protests. Students struggling with loans they can’t afford to repay blame the federal government for stripping away consumer protections

“Every fundamental consumer protection has been specifically removed by our Congress for student loans,” says Alan Collinge at the Zuccotti Park protest site in New York on Sunday.

“It’s led to horrible outcomes for the borrowers,” he adds. “The political will to crack down doesn’t exist.”

President Obama said in a statement on Tuesday: “Steps like these won’t take the place of the bold action we need from Congress to boost our economy and create jobs, but they will make a difference."

Unlike mortgage or credit-card debt, student loans can’t be eliminated through bankruptcy proceedings. With a sputtering economy, the investment in college doesn’t always pay off for students. In an interview on NBC’s “Meet the Press" on Sunday, GOP presidential hopeful Ron Paul called federal student loans a “failed program,” because it enabled colleges and universities to inflate costs.

RECOMMENDED: Tired of student loans? These schools will leave you with little debt.

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