Government Spending

Student Loan Subsidies Redux: For Just $10 a Month, You Can Subsidize Privileged Children

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George Will looks at the latest fooferaw over subsidized federal student loans, which includes the humanitarian intervention of keeping loans at 3.4 percent fixed interest rather than going back to the pre-2006 level of 6.8 percent:

The average annual income of high school graduates with no college is $41,288; for college graduates with just a bachelor's degree it is $71,552. So the one-year difference ($30,264) is more than the average total indebtedness of the two-thirds of students who borrow ($25,250). Taxpayers, most of whom are not college graduates, will pay $6 billion a year to make it slightly easier for some fortunate students to acquire college degrees.

The standard payback period or such loans is 10 years. What's the difference in monthly interest payments between 3.4 percent and 6.8 percent?:

The 6.8 percent rate – private loans for students cost about 12 percent – was itself the result of a federal subsidy. And students have no collateral that can be repossessed in case they default, which 23 percent of those receiving the loans in question do. The maximum loan for third- and fourth-year students is $5,500 a year. The payment difference between 3.4 percent and 6.8 percent is less than $10 a month, so the "problem" involves less than 30 cents a day.

Will also notes that the lower rate was the result of bipartisanship and that presumptive GOP presidential candidate Mitt Romney has already signaled his approval of keeping the rate at 3.4 percent, which costs taxpayers about $6 billion a year.

Whole column here.

Last November, ReasonTV offered up 3 Reasons Not to Bail Out Student Loan Borrowers. Take a look:

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  1. From the article (a question asked of Romney by a college student):

    “So you’re all for like ‘yay freedom and all this stuff and yay like pursuit of happiness.’ You know what would make me happy? Free birth control.”

    It’s almost as if the welfare state is running a public campaign for its dissolution yet virtually no one is paying attention.

  2. The average annual income of high school graduates with no college is $41,288; for college graduates with just a bachelor’s degree it is $71,552.

    Those averages are meaningless. It includes every college graduates of every age in every major from every college, regardless of background, personal history, family connections or money, etc.

    1. It’s meaningful because subsidized student loans are given to college students of every age in every major from every college, regardless of background, personal history, family connections or money, etc.

      1. Either way, if the government can lend out money at ZERO percent to banks, why does it have to lend out money at 6.8% to students? I don’t understand why interest rates on students are so high… Sure 23% may default, but they STILL HAVE TO PAY IT BACK (or their parents do). Yes, there is no direct “collateral” on the loans through the student, but the student needs a co-signer on the loan, and if you default on the loan the government can start garnishing your wages and taking your federal tax return. Student loans are the hardest thing to get out of – even bankruptcy doesn’t forgive you from it. Due to an error at the DoE, I had two guys from the Department of Justice show up and read me the riot act over my student loans. They threatened to take my wages, my tax refund (all $55 dollars of it), take my parents house, etc., etc. The government ALWAYS gets their money.

        You act like there is this huge risk with student loans because the students can screw the government. But they can’t – screwing the government on student loans is the HARDEST single thing you can screw someone on. If you default on your student loan, it will be near impossible to rent an apartment, buy a house (get a mortgage), buy a car (car loan), get more than a couple hundred dollars of credit (and with a 20% rate), or even get a job (employers look at your credit report).

        1. You sure got a lot of my comment. I had no idea that I claimed all of those things.

          1. Was replying in totality of the chain (you and above) along with the article. Sorry if it seemed that I was going rageahol on your 3 line comment 🙂

        2. Two wrongs don’t make a right?

          The government shouldn’t be lending money to banks at zero percent interest. You cannot correct that issue by also lending money to students at zero percent interest.

          Though frankly I think the entire issue is serious deckchair on the Titanic material. We’ve got way bigger problems than this.

          1. While two wrongs do not make a right, at least make it fair. If you are going to give money to the banks at zero percent, all other domestic government lending should be based on that rate and adjusted based on risk. However, with a student – there is really no risk. The student cannot really ever escape that debt. The government will garnish a students wages until the day they die if need be to get paid back. Where a bank can simply go out of business and the bank’s debt goes bye-bye. The fact that we are lending to private organizations at a 0 percent interest is stupid – but I think our citizens (who’s primary goal is to better themselves) should be deemed more trustworthy than a bank (who’s only goal is to make as much shareholder profits as possible – even if it means screwing the taxpayers).

            Though I agree, we have WAY bigger problems than this. However, this type of problem just underscores the fundamental problems underlying everything that is wrong today.

    2. Those averages are also meaningless in that plenty of skilled tradesmenpersons [;)] with minimal education beyond high school are making well north of $70K and plenty of people (as the Occupy movement has shown) with degrees are virtually unemployable.

      They also imply that if only those menials whose incomes are dragging the undegreed average down had degrees they be making the big bucks. But there’s a reason those people don’t have college degrees and for the vast majority that reason has nothing to do with not enough money.

      Frankly, I’m tired of the snobbery associated with most of this propaganda. I have the greatest respect for some of the people I know who are going through life plugging away at the best job their limited intelligence can get them especially since most of them do it with an uncomplaining grace that the people who look down on them can’t manage in a lifetime.

  3. $10 a month? That’s less than the cost of a cup of coffee a day.

    So let’s send the students the coffee and cut out the middleman.

    1. Yeah 10$ a month is pretty flat out wrong for $25,000 (The average student loan). It’s actually $41.64/month difference – or $4998 over the 10 year life of the loan. Use any loan calculator or do the math yourself. The article is wrong.

  4. The numbers on this look pretty bad. At $25,000 a loan would be $246.05 a month at 3.4% and $287.70 a month at 6.8%. That is $1.39/day difference or $5,000 DIFFERENCE over the life of the 10 year loan. Nice job making it look inconsequential… I would say 5 grand is pretty consequential on a ten year loan…

  5. I understand that there is some truth to the fact that increasing the availability of student loan funds increases tuition rates. One only need look at private loan lenders and for-profit schools to see that. However, the federally subsidized loans go to people with a lot of financial need, not just to middle class. While a few thousand dollars may not seem like a lot of money to some people, it is a huge amount of money to others and may change whether they attend college at all.

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