Monday, April 30, 2012

President Obama's solution for student loans: Make the taxpayers pay them

According to a 2011 quarterly report on household debt and credit, U.S. student loan debt is more than $1 trillion. The report also shows that student loan delinquency exceeds mortgage delinquency and the total debt balance for college loans exceeds credit card and mortgage loan balances.

So what is President Obama suggesting? That students default on their loans and let the taxpayers pay them off instead. His recently announced program requires taxpayers to pay off all remaining student loans for those students who have not paid their loans off within 20 years. Talk about an incentive to just walk away from a loan obligation. Once again, this administration is emphasizing the lesson that the government will simply take care of everything (even though it's the taxpayer who pays for it).

Of course, the government is also playing a role in causing the problems that need to be taken care of. Because colleges' spending is as out of control as Washington D.C.'s, they rely on the government to issue student loans to fund their spending habits. In turn, because the government is handing out student loans like candy, colleges know they can keep raising tuition costs to fund their spending. And who gets caught in the middle? Well, basically the student who graduates thousands and thousands of dollars in debt. But when loans are defaulted upon, the taxpayer is left holding the bill.

There is already a high default rate on student loans, and with the recent Associated Press survey finding that one out of two college graduates can't find jobs at all or at least not a job at the level they had hoped for, that default rate will surely rise. Add to it the President's basic invitation for students to walk away from their loans, and we have a potential disaster on our hands that will make the housing bubble look like kids' play.

But in his attempt to buy the youth vote (especially since there has been an 18-point drop in youth support for him), Obama is out stumping for his own reelection by terrifying kids that the interest rates on student loans is set to double come July. He is doing his best to stress to these potential youth votes that their financial situation is dire, and only the government can swoop in and save the day.

Conveniently, the issue is perfectly timed for the President's reelection campaign because a 2007 measure to temporarily reduce student loan rates to 3.4% is set to expire in July, hence the doubling interest rates to 6.8%. Obama wants to extend the current rate. Republicans are in the unenviable position of having to point out that an extension will hurt the taxpayer. Even the Congressional Budge Office estimates that a one-year extension of the current 3.4% rate for subsidized Stafford loans would cost $6 billion.

John P. Kline Jr., (Minnesota - R), Chairman of the House Committee on Education and the Workforce, agreed that extending the low rate would be costly. “We must now choose between allowing interest rates to rise or piling billions of dollars on the backs of taxpayers,” he said. “I have serious concerns about any proposal that simply kicks the can down the road and creates more uncertainty in the long run — which is what put us in this situation in the first place.”

But rather than discuss how the issue is more complex than merely extending the current rate, the President is joyfully using it as a political weapon against Republicans to score campaign votes. And by refusing to address what actually helped lead to the crushing student loan/debt problem in the first place (out of control spending by colleges and reckless loan issuance by the government) the President is pointing fingers and using emotional tactics in hopes of terrifying or angering young voters into giving him another term.

It'll be interesting to see if the 50 percent of graduates who can't find jobs, yet are saddled with enormous debt, will fall for the President's rhetoric, or realize he has done nothing to fix the problems we face. Maybe if there were jobs available, graduates could actually honor their loan obligations. But why would the President discuss obvious problems like unemployment when, as usual, he offers no real solution for fixing anything?



7 comments:

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  2. Hi Student Grants,

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  4. Wow is this real? tax payers footing the bill? No????? Oh well, I guess we will see what the outcome will be.

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  5. The only question that remained unanswered for this one is if this solution works better than the solutions given before. I really do hope it is the last and the best solution. Looking forwards for huge progress on student loans then.

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