It’s unclear whether Obama’s latest proposal to reform the federal college loan system is bold and progressive or just plain idealistic and shortsighted.

Currently private lenders facilitate federal loans by acting as middlemen between schools and the government. Essentially, paperwork and services are outsourced to lenders rather than handled directly by the government and a school.

To clarify, as a Whitman student, you could opt for one of two types of loans. The first is a federal Stafford loan. The other is a private loan. It is the former type of loan that Obama’s initiative targets.

Prior to the Clinton administration, no direct loan program with the government existed. The Clinton administration pioneered a change that gave schools an option between the Direct Loan Program, which excludes private lenders, and the Federal Family Education Loan Program (FEL), which includes private lenders. Whitman participates in the latter program.

Up until now, according to Assistant Director of Financial Aid Marilyn Ponti, schools have chosen between the two programs based on what works best for them.

“We feel really lucky. We send them all electronically. For us it’s a very easy system,” said Ponti.

According to Republican and former Clinton adviser Dick Morris, writing for The Hill, “The special interests –– particularly Sallie Mae, the leading student lender –– forced Clinton to allow private lending alongside of the government program. Now Obama is trying to eliminate it. And wisely so.”

But how wise it actually is bears investigation.

According to Director of Financial Aid Varga Fox, over the past 15 years the competition sparked by the creation of choice between those programs remarkably increased the quality and services offered by private lenders.

Now, Obama hopes to establish the Direct Loan Program as schools’ sole choice.

By cutting out the purportedly superfluous middleman, Obama intends to reap billions in savings for government that it then would inject into the Pell Grant program, which helps the neediest students.

On the surface this proposal sounds sterling: simplify lending, lower fees for students and direct money to students rather than to subsidies for lenders.

But in fact it may present significant challenges, particularly since Obama aims to convert to direct lending by next year.

“The federal government would hold the loans and we ourselves would be responsible for all the processing,” Ponti said, pointing out that the financial aid office currently is staffed by three-and-a-half people.

Neither colleges nor government currently have the infrastructure or resources to administer all the loans themselves.

Some proponents of Obama’s plan simplify the issue. Government already guarantees these loans, and now it ought to cut out greedy bankers. Morris writes, “The issue is should the lenders make a profit, or should the student pay a lower interest?”

But that rhetoric undermines the real services provided by lenders, services which the Department of Education may not have the resources to offer.

“What concerns me is that lenders have always been there for schools –– just a lot of things they’ve provided that we as a school would have to pay much more for. They’ve provided services to our students that I think are outstanding,” Ponti said.

Of critical importance is whether government is equipped to offer, by next year, not just all the processing but also the services that they haven’t had to offer up until now on a large scale.

“One thing to remember is that statistically I think 80 percent of schools are doing FEL. If we all switch over, that’s 80 percent of us.

Our concerns are whether the system can handle that. Right now at Whitman we don’t have a single problem with a loan being disbursed,” said Ponti.

Services, including exit interviews and financial literacy training, have helped students tremendously.

“At Whitman the default rate is zero. We work hard so that students understand their responsibilities. I can tell you they’re [the government] not going to come to campus to offer financial literacy training. I would miss those programs to help students,” said Ponti.

“We know because of Department of Education training that it’s difficult for them to even come for state training, let alone to campus. It just wouldn’t happen.”

Some argue that corruption –– lenders enticing schools to use their services through bribes –– would be eliminated by Obama’s plan.

“I sort of laugh about that because when you talk about incentives, a lender may come and visit and gave you sticky notes, it’s not like they’re sending us to the Bahamas,” said Ponti.

Reform is necessary, and I think Obama is headed in the right direction. But it seems like the best approach might be one that still utilizes valuable private sector services.