Pres. Obama Offers Students Refinancing
Forgive student debt! One of the more, shall we say, unconventional demands from the Occupy Wall Street crowd, but it seems President Obama has taken their concerns to heart.
He’s losing the youth vote, less than 40% approve of the President’s job performance, while 54% disapprove, and the youth unemployment rate is higher than the national unemployment rate. The President needed to do something to try and win back this critical voting block, which came out in droves for him in 2008.
Student loan debt has topped $1 trillion. That is staggering, and is more than mortgage debt and credit card debt. The President’s new plan will start in 2012 and allow students to pay 10% of their discretionary income towards student loans (down from 15%) and forgive all outstanding debt after 20 years.
But what he’s doing, while it might get him votes, is not good for the country. His plan to ease student debt (let’s be clear, he is not simply forgiving all debt) will leave taxpayers on the hook for billions. As Lindsey Burke of The Heritage Foundation describes:
“It is unfair to forgive student loans on the backs of waitresses and construction workers and the nearly three-quarters of Americans who didn’t graduate college. Increases in federal subsidies or student loan bailouts shift the burden of paying for college from the student—the person directly benefiting from college—to the millions of Americans who did not graduate from college.”
So if a student graduates from college with a philosophy or art history degree and never moves out of the low-income status, taxpayers will be on the hook for their loan after 20 years. Is that fair? Shouldn’t there be stipulations about what degrees qualify for loans to begin with? It seems that someone who majors in dead languages should not get the same loan guarantee (with the 20 year forgiveness) as an engineering major. Perhaps potential post-graduate earnings should be taken into account when determining how much someone can get from a government loan.
Besides that, by forgiving debt after 20 years, the taxpayers who pay for that loan will be losing money. Chris Stirewalt of Fox News presents this scenario:
“If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.
Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.”
While this might sound great for students, taxpayers should be very weary.