So, is Obama’s student-loan executive order actually going to do anything to mitigate rising tuition prices?
posted at 5:01 pm on June 10, 2014 by Erika Johnsen
Noah already covered the reliable Republican-bashing optics of President Obama’s latest attempt to rope in young people with the allure of super-free stuff, but I just wanted to take a quick look at the unintended-yet-entirely-predictable consequences of the White House’s oh-so-munificent executive action that is ostensibly meant to lessen students’ debt burdens. Via WaPo:
In an attempt to further ease heavy college debt, President Obama on Monday signed an executive order allowing millions of student-loan borrowers to cap their payments at 10 percent of their monthly income.
Flanked by students and recent graduates who borrowed money to go to school, Obama said the cost of college and burden of student debt are suffocating middle-class families and putting students at an economic disadvantage before they enter the workforce. …
Most student-loan borrowers already have the option to limit payments to 10 percent of their income under recent legislation and regulations. Obama’s order on Monday extended that option to about 5 million others who were not covered by the previous changes, including those who took out loans before October 2007. …
Obama has publicly endorsed legislation sponsored by Sen. Elizabeth Warren (D-Mass.) that would allow students to refinance both public and private loans at lower interest rates. It would be paid for by closing a tax loophole available to the wealthy.
The real, most fundamental problem with crushing student loan debt is, of course, that it is so very crushing. Traditional college tuition prices have been on a continuous upswing far outstripping inflation for going on several decades now, largely helped along by the fact that the federal government has stepped in as a cheap and indiscriminate lender to anyone and everyone looking for any type of student loan.
President Obama’s executive order is a relatively small item, but it certainly isn’t going to do diddly squat to help pay down the more than $1.2 trillion debt bubble currently plaguing students, and nor is sending out the precisely wrong message to future borrowers: We’re going to make it even easier than it already is for you to take out even more and even bigger loans. How do you suppose colleges and universities will respond to that message? By, in turn, raising their prices, perhaps? And might apparently cheaper loans factor into potential students’ personal cost-benefit analyses when evaluating their education/career ideas and future prospects, perhaps tipping the scales in favor of less wise investments? Even worse than Obama’s executive order, however, is Sen. Warren’s proposed legislation, which is an even larger item that creates even more of these perverse incentives.
Neal McCluskey at the Cato Institute hit the nail on the head here:
In the name of helping them, federal politicians, and many other people, massively oversell higher education to the detriment of students. Perhaps as much as half of people who enter college don’t finish; a third of people with a bachelor’s degree are in jobs not requiring the credential; underemployment is even worse for graduate-degree holders, and; cheap college has almost certainly fueled credential inflation, not major increases in knowledge or skills.
Decreasing what borrowers will repay means taxpayers – who had no choice in whether the loans were made – have to make up the difference. And there is a little matter of being nearly $18 trillion in debt already.
There is no such thing as a free lunch, or a free education at a liberal arts college for that matter — and teaching students otherwise is not doing them any favors.