It’s no surprise that Americans, especially Millennials, are struggling under the weight of student loan debt. The impacts of over a trillion dollars in student loan debt are being felt across our economy as young people are postponing generational milestones such as buying their first house and purchasing a vehicle because they can’t afford or qualify for the added debt.
The President and his allies know they are in trouble with young people going into the midterm elections. His approval rating has dropped to historic lows among the demographic that helped sweep him into office. Left-leaning voters are expected to sit out the 2014 elections. So, the President (and his Democratic colleagues in the Senate) thinks the answer is student loan “relief.”
Yesterday, President Obama signed an executive order to allow an additional 5 million borrowers qualify under a student loan repayment program that caps student loan payments to 10 percent of a person’s discretionary income.
Senate Democrats are also set to vote on a bill sponsored by Senator Elizabeth Warren (D-Mass) that would allow student loan borrowers to refinance their existing public and private loans at artificially lower interest rates. This would be funded by a tax on higher earners –yet another populist tactic.
This is a political stunt meant to drum up support for the Democratic ticket among a demographic that is buckling under the weight of policies such as ObamaCare, entitlement spending, and increased government spending broadly, that are robbing us of our future and prosperity. The President’s partisan motivations were on full display as he took divisive shots at Republicans, painting them as only concerned about the wealthy.
The Hill reports:
The twin efforts come amid signs that crushing student loan debt is holding back the economy and preventing people from entering the middle class and buying first homes.
The White House and Democrats see student loan relief as a populist issue, and would pay the $51 billion cost of the Senate bill over the next decade with higher taxes on millionaires — a poison pill for Republicans who have long opposed tax hikes.
“I want Americans to pay attention to see where their lawmakers’ priorities lie. Lower tax bills for millionaires or lower student loan bills for the middle class?” Obama said on Monday.
Sen. Lamar Alexander (R-Tenn.) called the Senate bill a “political stunt.”
Some Republicans also have argued that government efforts to provide relief to students seeking a college education have actually contributed to the higher college costs. They argue that the more money the government makes available in aid and relief, the more colleges can get away with charging.
Called relief, these measures have the affect of distorting the student loan market and continuing to inflate the student loan bubble that will eventually burst.
As the Hill notes, last month Brookings reported that the costs of college are up 16 percent from 2002-20012 and according to the Institute for College Access and Success 71 percent of college seniors are now carrying some amount of student loan debt, and the average debt load is $29,400.
What’s driving debt? Higher costs of higher education. What’s driving costs higher? In part, the ease and accessibility of student loans backed by the government. It’s a vicious cycle. Colleges know that students can secure public subsidized and unsubsidized loans easily from the federal government (and states to an extent). Therefore, they have no incentive to control the costs of education. Instead of scholarships and grants, they fill student aid packages with loan money that must be repaid. Students and families seek as much in loans as they can, thinking that a degree will deliver a good job after graduation to repay those loans.
Unemployment among 18-29 year olds is more than 15 percent, and 1.9 million young people have dropped out of the market entirely because they can’t find a job according to Generation Opportunity’s monthly Millennial jobs report (in full disclosure, I work for Generation Opportunity). What we have are students graduating into an economy with little work for them but they are saddled with debt to be repaid.
This measure doesn’t address the real issues of climbing costs of higher education or that perhaps too many students are making the wrong choices for their education beyond high school.
It’s time for big ideas that not only address student loan debt but that make us rethink the “every kid to college” model. Perhaps career success for many young can be found outside of an expensive four-year institution.