Obama’s Illusory Student Loan Scheme
October 27, 2011
With his latest pseudo-compassionate expansion of the student loan program, President Obama reminds us why we ask whether he is simply unable to learn from history or he is indifferent to government waste incurred in pursuit of “good intentions.”
Back when Obama was trolling for illusory savings to manipulate Congressional Budget Office scorekeepers into decreeing that Obamacare would be revenue-neutral, he proposed the ingenious scheme whereby the federal government would subsume 100 percent of the student loan industry and eliminate evil private-sector profits going to “middlemen.”
The plan was a smorgasbord for big-government enthusiasts because it envisioned whacking private business, legislative trickery and growing the government in numerous ways. It wouldn’t just allow the government to seize financial business in grand fascist style; it also gave Obama an excuse to expand the existing loan program.
By calculating $60 billion in savings over the next decade, Obama gleefully inflated student loans by $40 billion and boasted that he still had $20 billion left over to count toward reconciling the balance sheet on his grossly over-budgeted national health care bill.
Obama smuggled this student loan legislation into the Obamacare bill because it probably never would have otherwise attracted the 60 needed votes to pass on its own. Such relatively small-potatoes legislation, by itself, wouldn’t have supported the bribes Obama used to cram through Obamacare.
One such Obamacare bribe, included in the student loan section of the bill, was a hidden payoff to North Dakota Democrat Kent Conrad, chairman of the Senate Budget Committee. The bill established, in the words of the CBO, “a new program for lenders who were chartered before July 1, 2009, and are owned by a state under the control of a board including the governor and offered guaranteed loans prior to June 30, 2010.” This was crafted to apply to just one lender: the Bank of North Dakota. So much for open, honest government.
If all this weren’t offensive enough, the Obama administration initiated the process to transition toward the new student loan program some six months before the bill passed. Education Secretary Arne Duncan sent letters pressuring colleges and universities to prepare for the transition, even though many were reluctant and had chosen private lenders over the government option for a reason.
Fast-forward to the present and Obama, by executive fiat, is finessing a regulatory end run around Congress to allow student debtors to refinance and consolidate loans on more favorable terms, capping student loan repayment rates at 10 percent of the portion of a debtor’s income that goes above the poverty line, and limiting the life of a loan to 20 years.
You don’t need to be a math wizard to understand that this is just a slick way of forcing taxpayers to take a bigger hit by increasing the number of loans that will never be fully repaid, yet another redistribution of wealth from our Marxist in chief. Nor do you need to be a clinical psychologist to grasp that our government is teaching young adults how to be financially irresponsible with impunity.
Never worried about long-term consequences, Obama is either oblivious to (highly unlikely) or unconcerned with the likelihood that his actions will contribute to the expansion of a growing college debt bubble that economists warn could be analogous to the financial collapse-inducing housing bubble. Just as with the housing bubble, these unrealistically priced loans artificially increase the amount of money being spent on education, which will result in universities raising their prices. Research by Richard Vedder shows there is a direct correlation between increasing student “aid” and increased college tuition costs.
Guess who will be hit the hardest? The middle class Obama purports to care so much about, who will have to pay more for school and, in some cases, enter the student loan program themselves, further driving up costs.
Adding insult to injury, Obama tells us that we should be grateful for his magnanimity. Students not only are getting free money but also, with their refinanced loans, will have extra gazillions to spend and stimulate the economy he claims is being held back by obstructionist Republican congressmen for partisan purposes.
But guess how much extra dough Obama’s largesse will generate for the average student borrower? If you guessed $9 per month, you overestimated by a dollar. As HotAir’s Ed Morrissey points out, Obama’s Making Work Pay tax cut added about $8 per week to the paychecks of all workers in the U.S. for more than 2 1/2 years, which hardly stimulated anything.
Almost everything about this plan is wrongheaded and destructive, but Obama expects props for caring for these students. Well, I’m all for passing the love around, but wouldn’t it be nice if he heaped some of it on the United States of America?