Student Loans

Obama: We Have to Do Something About Student Debt and This Is Something

Something is always better than nothing, right?

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Obama

President Obama, keenly aware that he has to keep millennials on his side to prevent the Democrats from getting trounced at the polls in November, wants to confront the student loan crisis. But the current mess is itself the product of bad incentives engineered by government planning. Obama's approach won't plug the trillion–dollar debt sinkhole, and the one favored by Senate Democrats may worsen it.

Obama signed an executive order on Monday increasing the number of debtors who will be allowed to repay their federal Stafford student loans under more lenient circumstances. More borrowers can now enroll in a plan that obligates them to pay only 10 percent of their income every month as they work off their debts. After 20 years, the government writes off their debts entirely (or after just 10 years, if the borrower is working in the all-important field of public or government service).

Previously, only those who borrowed loans after 2007 were eligible for the repayment plan. It is now available to everyone.

The president also endorsed a bill sponsored by Sen. Elizabeth Warren (D-Massachusetts), that would allow students to refinance their loans at lower interest rates. He called her proposal a "no-brainer."

"I'm only here because this country gave me a chance through education," Obama said. "We are here today because we believe that in America, no hard-working young person should be priced out of a higher education."

That's a nice sentiment, albeit one that is completely at odds with what Warren's bill actually does. When federal lawmakers forgives debts—in part or in whole—they reward students who borrowed recklessly.

They also incentivize universities to raise tuition prices. College administrators know that they can get away with demanding more money, because students will take out more loans, confident that the government will bail them out if they run into trouble—and the government will stick the taxpayers with the bill if the students aren't able to pay.

Or, as the Cato Institute's Neal McCluskey put it:

Making student loans cheaper, which includes indicating that Washington will always soften your loan terms if politically possible, mainly encourages students to demand more stuff, and colleges to charge more. They're called "perverse incentives."

Keep in mind that public universities have shown zero interest in controlling their costs: Every year, they hire more administrators and build fancier dormitories and sports stadiums. But students will pay whatever they are asked to pay. They may never find jobs, but as long as they commit to decades of public service, their debts will eventually fall to someone everyone else.

This is what results from tackling college costs on the back end, rather than upfront. But, as seems to be the case with a chief executive who promised a "year of action" in 2014, the government just needs to look like it is doing something, even if that something is remarkably shortsighted and contributing to the very problem it intends to solve.

Something is always better than nothing, right?

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  1. Indentured Servitude

    1. The Unincorporated Man had a better solution than Obama, and it sucked too.

  2. Take the vote away from anyone w/ college debt. If your only significant life decision is to borrow 6 figures for a Lesbian Peace Studies degree, you have no business having a say in govt.

    1. Hey! I’ve paid down my loans to less than half of their original value, and have a degree in a field I don’t care for but which got me employment suitable to pay down said loans. (and my debt was never higher than five figures at the worst of it) Why should I be lumped in with people who are fiscally irresponsible?

      1. Once you pay it off, you can vote again.

    2. Not everyone with college debt has a degree in something stupid and unemployable.

      1. But those with employable degrees will rapidly pay them off.

        1. Not necessarily. It’s all about opportunity cost and if your loans are at a low enough interest rate, then it can make sense to pay them over time and put that cash to work elsewhere. My taxes each year for the last two years were more than my law school loans. I could easily pay mine off but since they’re at ridiculously low interest rates, I’d rather invest that money to make more. Cash is hard to come by and leverage can be your friend if done right.

          1. Sorry, but that’s arrogance not logic.

            Your return on investment isn’t guaranteed and can’t be known. Your interest payment is a known quantity.

            leverage can be your friend if done right.

            Doing it right involves getting OUT of an investment as much as it does getting INTO one. Loans are no exception.

            1. Your return on investment isn’t guaranteed and can’t be known.

              My CDs say what?

              1. At 1.5% APY, not much.

  3. Better solution – base loan eligability upon actual earning potential post-graduation. Then there won’t be a debt crisis anymore.

    1. If only there were some…free market, or something, that people could turn to that would account for this.

      1. Ending government guaranteeing of student loans does 2 things.

        1. This

        2. It allows them to be bankruptable so banks will require cosigners or proper collateral.

        1. You’re forgetting. The government doesn’t “guarentee” student loans anymore. It finances students directly. It was in the health-care bill.

    2. In addition, base loan eligibility on performance standards which will actually get someone hired after graduation. The current 2.0 GPA requirement (not to mention the lax attendance requirements) are absurd. I don’t know any company that will even look at someone with a GPA lower than 3.0. And if someone else is paying for your education, full attendance should be mandatory.

  4. Free shit buys votes!

    1. This is the worst part about it. Hearing kids and adults alike talk about it on the news, you can hear the unsaid comments like, “Yeah, but what am I going to do? Pay off my loans like an idiot? Turn down easing and eventual absolution of debt?”

  5. Don’t disrupt the FEMDOM. The wife wants to save up so the boy can go to college. Nothing wrong with saving, but I say, boy, listen to me boy, you ain’t going to college.

    /foghorn leghorn

    1. I’m saving up for my kids, but it won’t be enough, and the saving stops once they enter college. I have to up the retirement savings.

      I keep telling them to do the following:

      1. Kick ass in high school
      2. Get scholarships or tuition assistance from the school.
      3. If not 2, then community college, then state school. Don’t overpay for the employment entrance fee.
      4. If not college, then a trade that pays well and that you like doing.
      5. If not 1-4, you’re on your own.

  6. “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”
    Bastiat

  7. We demanded alt-text, and we got Robby Soave.

  8. This seems like a good place for this: I recently paid off one of my law school loans. With OIL MONEY…that I INHERITED from my grandfather.

    1. The monocle is strong with you

    2. Praise Obama! The system works!

    3. Clearly you didn’t pay your fair share in taxes on that if you had enough left to pay off a loan. TRAITOR!

    4. You should tool about in an Escalade with wheel rims that don’t synchronize with the tire’s rotation. Chicks love that.

    5. Party at RBS’ house.

  9. The economic illiteracy in this administration is just absolutely painful. Actually, knowing how colossally stupid this idea is doesn’t even require economic literacy. It’s just common fucking sense.

    1. Keep in mind that they, the pols, don’t give a fuck about the long run.

      It only has to last until the next election.

  10. That bubble ain’t gonna burst itself.

  11. Who decided that if the borrower is working in the all-important field of public or government service, the loan gets written off. Are those jobs(?) more important than private sector producing jobs?

    1. Yes, because serving Government, provider of all, is a noble cause.

    2. Yes. They are moral because they don’t create profits for rich people. That’s what the private sector does. It creates profits for the rich. In a truly moral economy there would be no profits for rich people. Just good citizens working to the best of their ability, receiving only what they need.

    3. I wonder who gets to decide which jobs qualify as non-profit.

    4. It’s very progressive…
      From “You didn’t build that” to “You don’t owe that.”
      When we reach “You don’t own that” the transformation will be complete.

  12. “Something is always better than nothing, right?”

    Nothing is exactly what libertarians are offering. Well, nothing and victim-shaming. It wouldn’t be a complete Reason article without unsubtle implications that people who graduate college are a bunch of deadbeats taking useless majors, e.g. journalism. Yeah, sure, this generation is going to college while tuition costs are exploding and earning potential is collapsing, but it would be against libertarian principles if the plutocrats running the loan racket don’t see every penny paid back.

    It’s fucking embarrassing to see self-described libertarians shilling for the interests of the elite. Economic populism is what’s hot right now, and you can either offer a libertarian flavor or cry when the debt-burdened and desperate turn to statist solutions.

    1. Yeah, sure, this generation is going to college while tuition costs are exploding and earning potential is collapsing, but it would be against libertarian principles if the plutocrats running the loan racket don’t see every penny paid back.

      It wasn’t libertarians who made student loans non-dischargable in bankruptcy. And tuition costs are exploding because of student loans.

      Economic populism is what’s hot right now, and you can either offer a libertarian flavor or cry when the debt-burdened and desperate turn to statist solutions.

      So, libertarians should turn to statism to preempt others from doing so. Yeah, that makes sense. WHY WON’T YOU GUYS JUST COMPROMISE YOUR PRINCIPLES ALREADY???

      1. Want an example of just how badly libertarians are failing on this issue that? The fact that when I mention offering a libertarian solution you immediately assume any solution is statist.

        1. Economic populism is statist. I dare you to show me an example otherwise.

          1. Uh, how about the whole anti-federal reserve thing?

            If you really can’t think of any way that libertarianism would be economically beneficial for the average person then please remove yourself from the libertarian camp.

            1. Uh, how about the whole anti-federal reserve thing?

              Is that economic populism? I think that’s debatable.

              If you really can’t think of any way that libertarianism would be economically beneficial for the average person then please remove yourself from the libertarian camp.

              Please point out where I said there are no libertarian solutions.

            2. Yeah! And quit using those public roads! Libertarians oppose public roads! So any libertarian who uses public roads is a hypocrite! Since all libertarians use public roads, they’re all hypocrites! Every last libertarian is a hypocrite! Hypocrites, one and all!

            3. Since our solutions would likely rein in tuition inflation, I’d say they’d be economically beneficial to the average person.

        2. Well, how about you give us your libertarian solution then?

          1. Im sure that would be awesome.

            But, since I dont expect to see one, I will play this game.

            1. End guaranteed student loans from this point forward.

            2. Anyone with a current guaranteed student loan is stuck with the rules they took the loan out under.

          2. This is the type of language libertarians need to be using:

            http://c4ss.org/content/9115

            That’s an article that’s going to appeal to people suffering from the student loan racket. Calling everyone who takes a non-STEM degree an irresponsible idiot doesn’t (as if STEM, and even fields that were once full-employment like accounting, haven’t suffered as well)

            1. I don’t find that article very persuasive at all. It was mostly couched in the language of class warfare and focuses more on the symptoms (high cost of college) without addressing the cause (government subsidies to colleges and students).

            2. suffering from the student loan racket.

              Well, when someone takes out enormous loans to study fields that would be better suited to being a hobby (i.e. Medieval Lit. or some bs), what do you expect?

            3. This is the type of language libertarians need to be using:

              [sic]

              First Steps To Fixing The Student Loan Crisis By Cutting University Costs

              -Fundamental reworking of university boards of trustees from appointee-governed to user-governed systems

              -Simple, accessible database of administrator compensation at all institutions of higher learning receiving public monies

              -Public forums and user-governed committees overseeing hiring and compensation packages for non-departmental administrators

              -Simple, accessible database of university contracts

              -Public forums and user-governed committees overseeing university contract negotiations

              -Reorienting university sports programs to serve as revenue generators for academics

              -Convert university dorms and family housing to cooperatively-owned residential property

              None of these solutions can be implemented without greater state intervention. Considering state intervention is a source of many of the problems to begin with, I don’t see viable solutions libertarian or otherwise.

              Not to mention that some of them are phenomenally uninformed, poorly thought out, and display obvious bias about the way a University *should* run.

        3. The, true, libertarian solution would be for each student to pay for their own education, without borrowing any money.
          What a concept!

    2. Report to loading dock 3, your orphans have arrived and are available for pickup.

    3. What’s truly embarrassing is your utter failure to see that this now puts taxpayers on the hook to pay back the plutocrats.

      But I’m pleased to see that you make your decisions on mindless populism (nothing more than special privilege begging) and what’s hot right now.

      1. “mindless populism”

        How elite of you. Democracy has some serious flaws, but being mindless isn’t one of them.

        1. Really? Have you checked Venezuela recently?

        2. Philip Converse disagrees

          There is no underlying belief structure for most people, just a bunch of random opinions. Even on highly controversial, well-publicized issues, large portions of the electorate do not have coherent opinions. In fact, many simply answer survey questions as though they are flipping a coin.

          1. Yep, this is true. Witness every argument ever made by Tony. He stakes out a position based on emotion then makes up a post hoc rationalization to justify it.

        3. but being mindless isn’t one of them.

          It’s actually the #1 problem with democracy. You can now vote without having ever demonstrated the ability to think through a problem.

    4. Yeah, sure, this generation is going to college while tuition costs are exploding and earning potential is collapsing, but it would be against libertarian principles if the plutocrats running the loan racket don’t see every penny paid back.

      Hmm, I don’t recall anybody holding a gun to my head and forcing me to sign the loan papers. Also, the “plutocrats running the loan racket” happen to be our friends at the federal government, at least for my loans. I knew what I was getting into, and while it wasn’t my favorite decision (the getting into 10s of thousands of dollars of debt part), the results aren’t half bad.

      Granted, I actually took a hard major in undergrad, and am currently parlaying that major into a field of law that is one of the few that is in high demand right now. But, yeah I’m just a victim of some evil nameless corporation somewhere, because I took loans from the federal government.

      1. “Hmm, I don’t recall anybody holding a gun to my head and forcing me to sign the loan papers. ”
        But your loan IS enforced by state violence.

        1. Right, so the victims are taxpayers.

        2. So is his loan to start his own business, or the money he loans to someone else to do something productive. So is his cell-phone contract. And his insurance policy. The loan is a contract. It must be enforced some way, even in an anarchist utopia.

          And, if for some hilarious reason you’re that Kate Micucci, so are your record and tv contracts.

    5. Yeah, sure, this generation is going to college while tuition costs are exploding and earning potential is collapsing, but it would be against libertarian principles if the plutocrats running the loan racket don’t see every penny paid back.

      The exploding tuition costs are a direct result of artificial demand-side increases wrought by govt higher ed subsidies while the diminishing earnings potential of degrees is a function of a supply-side flood of such degrees in the job market.

      Complete forgiveness of student loan debt or anything that lowers the actual total cost of said degree will only provide incentives for continuation and doubling down on the very forces that you’re trying to mitigate.

    6. We have a solution: Get rid of the Federal Loan Guarantee. This forces loaners to evaluate the loans they are giving out, forces students to look at the job prospects of the degrees they get, and forces parents to co-sign for loans and offer up collateral. Once people stop paying for college with loans on hypothetical future earnings, some fiscal sanity can return to shopping for colleges.

      1. Moral Hazard – how does it fucking WORK?

      2. We got rid of the federal loan guarentee. The federal government now lends directly to students, indiscriminately.

    7. Economic populism ruins countries. Sorry that our solutions have nothing to do with the concept.

    8. Nothing is exactly what libertarians are offering. Well, nothing and victim-shaming.

      Who, exactly, is the victim when someone is given a six-figure sum of money for a degree in Balogna and then not required to pay it back?

      Yeah, sure, this generation is going to college while tuition costs are exploding and earning potential is collapsing, but it would be against libertarian principles if the plutocrats running the loan racket don’t see every penny paid back.

      Earning potential isn’t collapsing if you get a degree in a field in demand. Nobody has ever wanted to pay millions of dollars to people with postgraduate degrees in puppetry. And the “plutocrats” in charge of the loan racket are using your money as well as mine, and you don’t think it should be repaid?

      1. When you think about it, libertarians are the ones who care about socially beneficial outcomes. Degrees on which one can make a financial return are those that others see as useful to them. Those degrees that no one else wants to pay the degree-holder for are those that only subjectively benefit the degree-holder. These new loan forgiveness schemes simply transfer the costs of these socially useless degrees onto unwilling participants.

        So who’s really pushing anti-social policy?

    9. You realize the Obama “solution” serves the elite the most? The plutocrats running the loan racket will get paid (in 10-20 years) under the Obama system, as the government guaranteed the loans and will pay them off. They get their money sooner this way.

      And since death is the only way out, they will lose less loans to death than before.

    10. I understand the political need to compromise sometimes, but this is an issue in which populism has not solutions to offer.

    11. it would be against libertarian principles if the plutocrats running the loan racket don’t see every penny paid back.

      Are you talking about the federal government?

      You are aware that there isn’t a middle-man anymore, right? it’s now the “Federal Direct Student Loan Program”.

  13. I’m confused.

    Yesterday while driving home, I turned on Dave Ramsey. A caller had a degree in economics (oh the irony) with $150,000 in student loan debt. She wanted to know if she should take a deal to refinance everything to 2% (she claimed one loan was carrying a 14% rate).

    So, it seems there are already programs out there that allow irresponsible people to at the very least, reduce their interest rate. Yet we need more?

    Also, what fucking moron needs to call a radio show to ask if 2% is better than 14%?

    1. Dave Ramsey has an entire ideology of debt that his listeners try to conform to. She was probably trying to figure out if Dave would approve her taking out new debt just to pay off old debt. Dave Ramsey makes great listening on long car trips.

    2. If you have 150,000 debt and an economics degree, you should damn well be able to figure that out for yourself. Or ask for a refund.

  14. I didn’t realize the executive order signed the other day also extended the 20-year loan forgiveness to, well, pretty much everyone. I thought it only capped the payments. Just when you thought this couldn’t get any worse…

  15. Obama just took a huge dump on all us chumps that paid back our loans. Man, what a bunch of assholes we are.

    1. Yep. I graduated in 2008 with $25k, paid it all back by 2010.

      I am a dumbass.

      1. Sucka!! I bet there is some economic rule or somesuch that says if you incentivize something, like not paying off loans, then people will…what will people do?

        1. They’ll evolve into the New Soviet Man and usher in an era of unprecedented prosperity. Duh.

      2. Finished grad school in 11 with $41k and paid it back earlier this year. Now don’t I feel like an idiot.

    2. Exactly. Why am I sending a 1/3 of my income to pay my loans off early again?

      1. Probably raised by parents with some 18th century ideas. Get with it man,
        to each according to his needs. Who doesn’t like free shit except some libertarian remnants?

      2. Please tell me you are also not so foolish as to think that that money you are contributing to ‘your’ 401k is going to serve you in retirement?

        All you need to bank on is the guy who promises you the most. After that, just start smashing stuff.

  16. IF they are going to eventually go down the debt forgiveness black hole, I’d like to see the FedGov go after the universities to get some of the money back. The lulz would be delicious. Of course, it would never be a Democratic administration. Can’t bite the hand that feeds you interns.

  17. He called her proposal a “no-brainer.”

    As do I.

    More likely than not for different reasons.

  18. Google Translate for DC:
    “We have to do something” = “We need to spend more taxpayers’ money”

  19. I don’t think our societ has reached ‘Peak Plunder’ just yet – but the wolves are already on the scent and sheep are soon to follow.

  20. What is done by executive order can be undone by executive order.

  21. “President Obama, keenly aware that he has to keep millennials on his side to prevent the Democrats from getting trounced at the polls in November,”

    Really?

    Because i didn’t think people under 40 really were significant to mid-term elections, nor do i think some ‘right sounding’ noises about student debt is what gets these kids out of bed in the morning.

    I think step 1 in Obama’s plan to regain his base would be “stop lying”; but then, its sort of his core skill set.

    i think the ‘saying Bo Berghdal served with Honor and Distinction bit pretty much shits in the mouth of every Vet in America, so he can forget about them for the moment.

    Maybe if he pardoned Snowden and threw him a parade/party, he could start banking on the elusive ‘millennial’ vote again.

    Oh and legal weed everywhere. Subsidized.

  22. In New Zealand, “student loans” are not student loans. You do not pay tuition, in exchange for agreeing to pay 10% more income tax when your annual income exceeds working full time at the minimum wage. This extra income tax, or voluntary contributions, pays off the loan balance. Interest is owed on the outstanding balance only if one lives outside of New Zealand. Any loan balance remaining at death is written off.

    The above is possible because in New Zealand, all universities are public, and the maximum they can charge is set by an annual statute. What the USA does is “incentive incompatible”, namely letting universities charge what they want, and letting students borrow as much of that amount as they desire.

  23. How about requiring the colleges/universities to shoulder some of the underwriting responsibility so that they have ‘skin’ in the game.
    That just might induce them to ensure that their charges actually learn something that translates into an employable skill.
    Don’t we already have enough Underwater Basket Weavers?

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