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Obama Administration 'Can't Wait' to Further Inflate Student Loans

12:30 PM, Oct 28, 2011 • By JOY PULLMANN
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President Obama announced Wednesday he will issue an executive order for the federal government to reduce student loan payments with measures that almost surely will have taxpayers picking up the tab. Americans owe $1 trillion in college debt, and some 1.6 million have subsidized student loans, which Obama federalized in 2009. 

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The president said student loan payments will now be capped at 10 percent of a debtor's income above the poverty line, and dissolve after 20 years. 

"We're just going to do this by ourselves. We can't wait for Congress, we're just going to act," said Education Secretary Arne Duncan on CNN. Apparently, Obama got the message from the Senate's KO of his jobs bill that Congress isn't feeling friendly to his "urgent" legislative fancies. Never you fear: Obama can obligate the Treasury without congressional approval thanks to another "cost-saving" 2009 measure. 

And obligate the Treasury he will, since its current obligations are so trifling. Chris Stirewalt at Fox News explains how this obligates taxpayers and exposes the government to more financial risk, similar to that causing the housing meltdown and financial crisis: "If Suzy Creamcheese... 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... Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy." 

The ironic thing is that his proposal, while likely to lead to more students loans and less ability for taxpayers to retrieve their money when students default, also does little for students who do pay their loans. As Daniel Indiviglio points out in The Atlantic, the average student debtor would have his or her monthly payment reduced, tops, by $7.75 a month.

College costs have increased nearly 600 percent since 1980, far outpacing inflation and price increases for cars, homes, and prescription drugs. Attempting to artificially reduce college costs through government subsidy is one of the major contributors to this inflation, as was true for the mortgage meltdown, since more money chasing the same goods means schools can increase prices, pushing more families into bigger loans for tuitions they can't afford. The president's proposal will only inflate the problem he's trying to solve while offering no substantial relief for students in the meantime. 

Joy Pullmann is the managing editor of School Reform News and an education policy fellow at The Heartland Institute.

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