Obama's Deficient Student Loan Plan

But thinking that more federal aid will make college affordable is like believing that a dog can catch its tail if it goes faster.

Obama at University of WisconsinJohn Kees / Wikimedia CommonsThe government normally doesn't care whether you or I accumulate large bills for home improvement, a new car, or exotic vacations. But Barack Obama feels no hesitation in concluding that the cost of higher education has placed "too big a debt load on too many young people." Therefore, something must be done.

The problem with Obama's analysis is defining "too big." Compared to what? Most of these young people, often in conjunction with their parents, have voluntarily shouldered student loans to pursue their studies. If they thought the burden was too heavy, they didn't have to take it on.

They have done so not because they are careless wastrels, but because they place an accurate value on higher education. They comprehend that it is very likely to pay for itself and that forgoing it would be the most costly option of all.

The president says the debt burden makes it hard for these people "to start a family, buy a home, launch a business or save for retirement." But they would most likely have even less money for those purposes had they avoided borrowing by avoiding college.

That's because people with bachelor's degrees make more money than people without—nearly twice as much, on average. Not only that, but the value of higher education has risen substantially. Over the past 50 years, the real value of a degree has tripled.

Some perspective is in order. Though some students acquire huge debts, two-thirds graduate owing $10,000 or less, and only 2 percent owe more than $50,000. Not all of the latter need to worry. A newly minted doctor, lawyer or MBA from a good school can expect an income more than adequate to the need.

Obama wants to let some five million borrowers cap their monthly repayments at 10 percent of their income and, after 20 years, be relieved of any remaining balance. What would the change cost? "We'll figure that out the back end," said Education Secretary Arne Duncan, in one of the more alarming budget projections ever issued.

The administration blames the problem on the growing cost of higher education. It has a point. College costs have risen much faster than other prices. In 1973, annual resident tuition at the University of Illinois at Urbana-Champaign was $496—which is $2,566 in today's money. For the 2013-2014 academic year, the sticker price for U of I freshmen was $11,834—four times more, in real terms, than their parents might have paid.

But thinking that more federal aid will make college affordable is like believing that a dog can catch its tail if it goes faster. One reason colleges charge so much more today is that federal aid makes it easier for students to cover the bill. The more the government does, the less reason students have to demand cost control, and the higher tuition will climb.

Forgiving more debts after 20 years (10 for those in "public service" jobs), as Obama proposes, adds to the expense inflicted on taxpayers without doing borrowers much good in the meantime.

Among those taxed to provide these benefits are people who earn less than college graduates because they didn't go to college. If it seems unfair for people to shoulder big loans to finance their degrees, it's even more unfair for people without degrees to share the sacrifice.

A better idea than Obama's is to make repayments simpler and more efficient by shifting to paycheck deductions, like Social Security taxes, at a rate chosen by the borrower, for up to 25 years. This gives borrowers more flexibility in the short run and the long run. University of Michigan professors Susan Dynarski and Daniel Kreisman, who devised the plan, figure it would cost taxpayers no more than the current program and might cost less.

The other thing that would really help is a stronger economy, which would put more debt-ridden grads into the jobs they prepared for. Any loan terms are tough for the unemployed and underemployed.

But the rising cost of college mainly stems from the fact that people are willing to pay a lot because it's so valuable, and it won't stop going up until it declines in value or they become more cost-conscious.

Obama says he really cares about the issue because he and his wife paid off their loans just 10 years ago. Obviously he wishes their education had cost less. But note: He doesn't say it wasn't worth it.

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  • ||

    Forgiving more debts after 20 years (10 for those in "public service" jobs)

    He really is shameless

  • Pompey||

    A clear intent to subvert equal protection under law. Observe my very surprised face, the man is a Constitutional scholar* after all.

    *Transparent charlatan.

  • Ted S.||

    It's a penaltax.

  • ||

    I agree.

    How can the government arbitrarily relieve only certain favored people of their debt burdens, sooner than others?

    Completely unfair.

  • ||

    I wonder if you would have standing if you tried to sue on those grounds. I'm betting the answer would be: FYTW

  • ||

    Those brave, selfless folks at DMV deserve to have their heroism rewarded.

  • Almanian!||

    As long as they can get home to their 50 cats families every night, safely, it's good.

  • Swiss Servator, CH yeah!||

    That was cruel and cutting, that insinuation was...

    I applaud you and damn myself for not coming up with it.

  • Atanarjuat||

    I think deep down, people like other people who have a similar personality type as themselves. And everyone likes the idea of a system where they personally, and therefore others like them, will thrive. Libertarians know we will thrive on our own merits, in prehistory (clubbing rivals for mates) or present day (running a combination orphanage/coal mine), so subconsciously we desire a system where only merit is rewarded and nannying is minimized. Leftists know they won't survive on their own merits so they try to set up a system where those good at bullshitting and favor-trading will thrive. Hence someone like Obama helping union members, low-level bureaucrats, etc. It's not a payoff for voting for him, he'd stab them in the back in 5 seconds and isn't up for re-election. He knows subconsciously that people who are like him will thrive the farther we get from a free market and meritocracy. Of course when communism really comes, most committed leftists end up as the first with their back to the wall.

  • Heroic Mulatto||

    Ayn Rand referred to this phenomenon as "the hatred of the Good for being good".

  • JWatts||

    "Of course when communism really comes, most committed leftists end up as the first with their back to the wall."

    This is where you completely lost it. First the political opponents on the other side go up against the wall, then the military that supported the other side, then the bankers/industrialists/rich and fourthly the political opponents on the Left.

    See, they're way down the list.

  • chmercier||

    Hah, I think that's why so many Leftists try to rationalize making money now by saying "well, the system is capitalist, so I have to make money now. I simply have no choice. I fund communism, and I am a communist."

    Mostly so they, like some academics in post-revolution countries, don't end up slaves or bullet testers.

  • ||

    Hence the rhetoric about how everyone's success is really dependent of horde of other people, so we don't really deserve anything we earn.

    Leftists know that THEY didn't really earn anything they possess, and they feel guilty about it. They climbed the ladder through social connections and took advantage of government handouts instead of getting there on their own. And they wish to make everyone else feel guilty about it too. But they secretly fear that there are other people who actually DO deserve what they've earned, and DIDN'T get it just based on favors and back-scratching.

    That's their deep hidden terror - that there actually are people out there who really do pull themselves up by their bootstraps. That there really are self-made men. They can't stomach the thought of people like us existing, because we shame them by our very existence. Which is why they hate us so much.

  • John||

    He views the world as a zero sum game and his role is to reward his supporters and punish his enemies. He really is right out of the third world. He is no different than someone like Mugabe or Chavez.

  • Heroic Mulatto||

    He really is right out of the third world Chicago.

    No need to go so far, John.

  • chmercier||

    ^This. Thankfully, he seems to be fairly incompetent else he would be really dangerous.

    Jeez, could you imagine if was as intelligent as people made him out to be? He and Chavez would be drinking out of skull-mugs by now.

  • Pompey||

    Deficient plan, huh? Is that the new "giant abortion of bread and circus?"

  • Almanian!||

    "giant abortion AND teh gai marriage of bread and circus"

    fixed

  • Mark22||

    It makes no difference who people marry or sleep with, or what they choose to do with their own bodies. Stop falling for such left wing political bait and stop derailing substantive and important political discussions with such b.s.

  • Fist of Etiquette||

    No bubble is too big for government to inflate.

  • Doctor Whom||

    Mr Notlob, there's nothing wrong with you that an expensive operation government program can't prolong.

  • Notorious G.K.C.||

    "Wow, college sure is expensive. How did that happen. Here, let me I crease federal aid, that shoukd help..."

    And the suckers buy it.

    First the feds discourage employers from testing job applicants, encouraging them to use college graduation as a proxy for good scores on such tests. Then the feds prop up the residential college model which in so many fields of study has become obsolescent. Then they try to solve the "problems" thus created. Lather, rinse, repeat.

  • Atanarjuat||

    Yep, we're watching the creation of the Kludgeocracy in real time.

  • John||

    The point is to reward left wing professors and administrators.

  • sarcasmic||

    While that is the result, I doubt it was the intention.

  • John||

    I think it was. The result of every one of their policies is that their supporters get rich at everyone else expense. Sure they rationalize it by telling the sleeves they are helping not stealing g but the result is always the same and intended.

  • sarcasmic||

    You give them too much credit.

  • chmercier||

    Probably. I think the main issue is finding out how many are feelings-based lemmings and how many are evil.

    John's right that there are people who definitely manipulate the "FEELINSZGZ" people (the grossly incompetent) in order to make themselves grotesquely rich.

    Sarcasmic, you have a point though. I've met and discussed with a lot of bobbleheads who really can't connect the dots.

    "Raising taxes and prices makes people richer!"
    "Tuition is expensive? They need to increase taxes for more state funding for schools!"
    "They need new departments to look at these numbers! The cost of tuition is outrageous."

  • chmercier||

    Also reminds me of "free" health care. I've had to explain to many people that "free" health care isn't - you pay for it in taxes.

    They really couldn't get it. The math thinking wasn't there.

    "Uhm, if you're taxed at 20% without 'free' health care, but taxed at 35% with 'free' health care, you're paying for it."

    Concrete slabs have more visible expression than when that's explained. Then they just say "but it's free."

    No, there are a lot of duuuuumb people who buy this claptrap.

  • Almanian!||

    What difference, at this point, does it make?

  • Almanian!||

    A better idea than Obama's is to make repayments simpler and more efficient by shifting to paycheck deductions, like Social Security taxes, at a rate chosen by the borrower, for up to 25 years do nothing, thus not making things even worse, and let God [what's left of] the market sort things out.

    alternate ending

  • RishJoMo||

    There is a dude trhat really seems to know what time it is. Wow.

    www.WentAnon.tk

  • Heroic Mulatto||

    Female Japanese politician from quasi-libertarian party heckled when speaking out against overbearing Tokyo municipal regulations that make life harder for pregnant women.

    The parting thought CNN wants you to leave with?

    The incident last week reignited the debate over sexism in the Japanese workplace. Women are paid, on average, 30% less than their male counterparts, according to statistics cited by Japan's Prime Minister Shinzo Abe during an editorial last year announcing the launch of "Womenomics."

    Women also hold just 3% of management positions in Japan's central government, according to the National Personnel Authority. Abe wants to increase that to 30% by the 2020 Tokyo Olympics.
  • WDATPDIM!?||

    Well duh. The solution to any problem, including problems created by government, is more government.

  • Swiss Servator, CH yeah!||

    HM,

    We appreciate the sacrifice to your spleen that reading and/or watching CNN entails.

    What a steaming load that is...

  • straffinrun||

    I've been in Tokyo for 20 years and have been waiting for a free market politician. Not sure how close Mina no To is, but gotta start somewhere. I didn't know their platform either, Thanks.

  • Heroic Mulatto||

    To be honest, our Tea Party could learn a lot from Tokyo's Tea Party. Namely, cute anime mascots are more appealing than middle-aged men with potbellies in Colonial cosplay.

  • John||

    And mixing in a few cute young Asian women wouldn't hurt either. More hot Asian Chicks less Star Trek convention in tri cornered hats would be a good start.

  • Slammer||

    I chuckled at this in the comments:

    Noura Al-Hazzani • a day ago

    Muslim women wear the veil because other men are around and they obey God's words, that men should lower their gaze and women should cover their bodies.

    No one is forced by a country or a law, except not to walk around showing off your body that's illegal for both genders.

  • Heroic Mulatto||

    From the point of view of a devout Muslim, Al-Hazzani's comment makes sense in that man-made laws are nonbinding being human creations, but the dictates of sharia are supposedly the framework of the natural workings of the universe. Thus, humans cannot successfully act against them even if they wanted to.

    *holds up hand*

    Yeah, yeah. I know. Forget it, it's Shariatown.

  • chmercier||

    Haha - nice.

    I wonder if that's a variation of the old Calvinist rule (or rule of any sociopath, not that Calvinists are...) of "God must be blessing me 'cause I haven't been punished!"

    Or: "I must be doing something right because I'm rich!"

    That's what it made me think of, anyway.

    Sharia: Nobody's Really Stopping It, So It Must Be Okay

  • Mark22||

    Well, if it's God's law, then let God enforce it and mete out the punishment, instead of a corrupt theocracy.

  • straffinrun||

    The clear solution, which all reasonable people agree upon including 97% of scientists, is for us to pay for students to go to university. We need negative interest rates to stimulate the housing and stock markets, too. Above all else, we need to be able to stuff our hands in the pockets of the working smucks who pay for it all.

  • WDATPDIM!?||

    Ten out of ten college administrators agree!

  • chmercier||

    17 out of 12 vice-assistant deans think that's too low of an estimate!

  • Heroic Mulatto||

    It has worked so well in Europe. Look at the economic powerhouse that is France!

  • Rhywun||

    Enh Germany has the same system and they're no France.

  • Rev-Match||

    But thinking that more federal aid will make college affordable is like believing that a dog can catch its tail if it goes faster.

    HA!

    I'm paying off mine and not bitching about it. Then again, I took a useful degree path.

  • John||

    I am paying off mine as well, though the state of interest rates and the fed's war on savers has caused me to worry less about paying them off quickly than I would have otherwise.

  • some guy||

    I worked part time and lived a life of abject poverty full time during school. Managed to leave with no debt at all. I'm such a chump...

  • John||

    My wife is a mad saver. I like saving but when you consider inflation, interest rates are negative right now. Meanwhile my loan interest rates are almost zero. Taken together it makes no sense to sacrifice a lot to pay them off quickly. I just work on not wasting money on consumable things like eating out and traveling. At this point having hard usable assets makes sense and fix rate debt is really not a very big deal. Such is the upside down incentives of living in Paul Kruginuts and the fed's world.

  • Rev-Match||

    I really should have worked during school, but I was kinda lazy. Also, what John said.

  • some guy||

    The best way to help these folks would be to get the federal gov't out of the student loan business altogether. It would help if we repealed higher ed. regulations like Title IX. Finally, we could revamp how student debt is handled during bankruptcy. I'm not saying we should make it dischargeable, but maybe give more room to work out reasonable payment plans.

  • Emmerson Biggins||

    It should definitely be dischargeable in bankruptcy. And govmt itself shouldn't be the lender. That alone would fix a huge chunk of the problem.

  • Mark22||

    I think it should be privatized, and the same rules, including bankruptcy, should apply to student loans.

    Allowing bankruptcy discharge is what will make lenders more careful in who they give these loans to, and that's the point.

  • Number 2||

    You all miss the point. This has nothing to do with solving a "problem," and everything to do with midterm electoral politics, putting Team Red in the position of "refusing" to help struggling college students, just like the "give America a raise" talk from three months ago was designed to put Team Red in the position of "blocking" a minimum wage increase.

  • John||

    There is that. If team red wee not team stupid, they would counter with a plan to forgive even more debt but pay for it by taxing college endowments. The it would be the Dems sticking it to ends red students to protect millionaire college presidents.

  • ||

    If we're going to do this, we need to start restricting loan eligibility by major. You can't just hand out free money willy-nilly to anyone to study whatever they want, and then forgive it twenty years later when their career in basket weaving hasn't panned out. It's not really helping that person twenty years down the line, or ever, by not telling them up front that their career choice has no job prospects.

    In a free market, banks wouldn't lend to anyone they didn't think would be able to pay it back. Which would mean lots of money for STEM majors, not so much for liberal arts (unless your grades were really good).

    If we're going to start forgiving loans then funding these people is just throwing money away. The student loan program should be revenue neutral over the long term. otherwise we should stop calling it a "loan" program.

  • chmercier||

    Do you really want the government determining that? I understand the returns argument - STEMs more readily pay back their loans.

    The problem would be where we are now as far as research goes - only the party-liners would get the grants, loans, etc., even more.

    I think that solution would work best with the good old reductivist libertarian solution: if the universities were privatized, they could dole out the loans based on how they wanted. Heck, colleges/universities could even have specific focuses (a Humanities college, a Business college, etc.) while still having general education requirements that way a History college kid would have a background in math, science, etc.

    Also: it seems like a lot of kids don't double-major in things...

  • ||

    Ideally student loans would just be privatized. But that doesn't seem likely to happen, so the next best thing is to try to make the government act more like a private bank would.

    If the banks had to forgive loans after 20 years, what would they do? They would stop giving loans to people with really low-paying majors.

  • Frozen Costume||

    Obama's Move to Help Students Is Not as Forgiving as It Seems

  • chmercier||

    Obama - Unable or unwilling to make the connection that if you increase the cost of living, somehow people have less money to pay debts and bills.

  • AD-RtR/OS!||

    Which of his many plans are not deficient?
    After two terms of deficiency, survival is something to look forward to.

  • Bubba Jones||

    Why do I need a payroll deduction? Why can't I set up an automatic debit like everything else?

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