The president's plan also promises to take the sting out of rising tuition costs.
So what do students and school administrators think of all these changes? A good place to start would be the president's old stomping grounds, Occidental College in Eagle Rock.
Whether it's at a state university or a private school oftentimes the hardest part isn't passing the classes, it's paying for them. Let's face it, college tuition costs can be a real eye-opener.
"When I started here, I believe it was like 47,000-ish. Now it's gone up to the 50s," said Occidental student Adrian Franco.
That's tuition per year at Occidental College a private liberal arts university where roughly 75 percent of the students rely on school loans and financial aid
"It's a little intimidating realizing the fact I haven't started working yet and I'm going to be, you know 20-, 50-thousand dollars in debt," said Occidental student Ben Kaufman.
But school officials say the president's overhaul of the college loan program should make life easier for students. Occidental administrators say initially it could mean more paperwork, but that students will have better chances to get Pell grants, which don't have to be paid back. And interest rates on college loans won't vary anymore
"Rates are the same for everyone, essentially, so they don't need to worry about choosing a lender, they have to worry about getting an education, which is the important thing," said Brett Schraeder, associate vice president for enrollment management, Occidental College.
Pushed out of the guaranteed college loan system are the private banks, the Sallie Maes, the Citibanks, the Chases. They've been involved in about two-thirds of all college loans and received federal subsidies in return.
The Obama administration says lending directly to students will save the government $61 billion over 10 years. And repaying the loans will cost students no more than 10 percent of their income.
"If you pay your loans on time, you will only have to pay them off for 20 years, and you will only have to pay them off for 10 years if you repay them with service to your community and to our country," said Obama.
The remaining balance of the loans would then be forgiven. That's a nice break for students like Ben Kaufman, who plans on joining the Peace Corps after he graduates.
"I'm stressed out enough as is with all my school work, so knowing that I won't have to pay that much when I graduate is a little bit easier," said Kaufman.
You can also look for more grants for low-income students. The president's program promises 800,000 more Pell grants to be awarded over the next 10 years. The average amount of those grants is about $6,000.