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Washington Examiner


The Administration Is Mismanaging The Student Debt Problem

June 13, 2014

By Judah Bellin

Sen. Elizabeth Warren's and President Obama's recent higher-education proposals amount to more federal mismanagement of our student debt problem.

While the bill by Warren, D-Mass., to allow refinancing of student loans died in the Senate earlier this week, Obama's executive order is here to stay - even though it likely won't do much to solve the student debt crisis.

The order accomplishes a few things. Most important, it expands a 2010 law that allows borrowers to cap their loan repayments at 10 percent of their income. The President's order will extend eligibility to students who graduated before October 2007 or who haven't borrowed since October 2011 around 5 million borrowers.

The order also instructs the Department of Education to both incentivize federal student loan servicers to help borrowers avoid default and ask tax-preparation firms to inform students about college tax credits and loan repayment methods.

These actions are fairly consistent with the federal government's preference for style over substance when it comes to student loan reform. For one, it's highly unlikely that students will be better off in the long run. By offering generous repayment terms to more borrowers, the president is signaling that the federal government is more committed than ever to bailing out indebted students. This can only serve to increase students' confidence in large-scale borrowing from the federal government. The amount of outstanding student loan debt - which now tops $1 trillion - will grow apace. So long as the economy remains lousy for recent graduates, delinquencies and default will grow, too.

The short-term benefits of this executive order are also slim. The expansion of the repayment program doesn't actually go into effect until Dec. 15. So why is the president pushing his plan so aggressively now? Not only did he host a press conference on Tuesday, but later that day he appeared on Tumblr to field questions about student debt from students and families.

One suspects that partisan politics are at work. The midterm elections are rapidly approaching, and, according to the most recent New York Times' projections, the Republicans have a "slight edge" in winning the Senate. The president possibly hopes to rally the young people who propelled him to victory in 2008 and 2012.

Indeed, his efforts nicely complement Senate Democrats' recent focus on student debt. In addition to her recently blocked bill on loan refinancing, Warren has pushed measures to lower the interest rates the federal government charges students.

Though these efforts make for good optics and might garner some votes none actually address the underlying cause of student debt. In fact, all of these measures aim to either help students borrow more or repay that which they've already borrowed. They don't attempt to restructure the way in which the federal government disburses loan awards, which I believe is at the heart of the explosion of college tuition and student debt. A better way forward would delink loan awards from the specific cost of attending an institution, which would remove the federal cushion universities currently enjoy.

This isn't likely to happen, though. Not only are the Democrats interested solely in gimmicks, but the Republicans seem uninterested in offering serious alternatives. Expect more press conferences and social media events, but little substance.

Original Source:



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