Home / Blog / Article


July 16 2014

Obama’s Loan “Forgiveness” Order Punishes Taxpayers

Vicki E. Alger

President Obama insists that “no hardworking young person should be priced out of a higher education.” But that shouldn’t mean passing rising college costs and mounting debt on taxpayers, either.

Last month Obama signed an executive order extending the cap on student loan payments to 5 million more people. For all the cheering by beneficiaries of this latest pass-the-buck plan, there are several core problems—even if we believed that federal tinkering does anything to lower college costs.

First, as Hot Air’s Erika Johnsen explains:

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.

The Cato Institute’s Neal McCluskey also notes:

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.

What’s more, given the details of how Obama’s loan forgiveness plan works, it turns out law and medical students, and others, not typical undergraduates, will get the most relief, according to The Washington Examiner’s Susan Ferrechio:

Lawyers, doctors and other highly trained professionals who utilized federal loans throughout their post-high school education could walk away with most or all of their graduate school debt forgiven by the federal government under the program, say experts. …

A lawyer with $150,000 in combined undergraduate and law school loans at a 6 percent interest rate, for example, could walk away from the law school debt by going to work in the public sector with a starting salary of $70,000.

Even with a 4 percent raise each year, the public defender or prosecutor who makes on-time payments and utilizes the monthly loan payment cap and 10 year forgiveness program will escape having to pay $187,000.

The rest would be picked up by the government [more precisely, by Joe and Jane taxpayer].

Median household income is just over $53,000. There is no good reason taxpayers who had no say in this plan should be made responsible for debts to which we didn’t agree—especially since this plan does nothing to hold postsecondary institutions and graduate schools accountable for skyrocketing prices. A better approach would be to direct public funding to individual students, not through bloated college financial aid offices and administration with a vested interested in spending more, not less. Families and students should be encouraged to save for college through tax-free college savings accounts. Businesses should also be encouraged to make tax-deductible contributions toward the education and training of their current and future employees. And, alternate higher education providers should be allowed to offer customized programs and training that students need to increase competition for students and funding. That way postsecondary institutions would have powerful incentives to keep their prices low, program quality high, and the degree process streamlined.

 

 

 

 

 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
Follow us