The Student-Loan Scam

Posted by wanpinfo in Blog

Apr
29

Does it make sense for the government to take taxes from the big majority of Americans who never managed to win college degrees in order to subsidize the pricey education of the fortunate few who get to attend top universities?

Why is it fair to increase burdens on stressed-out working families so the feds can reduce future interest payments on student loans for members of the elite?

Isn’t President Obama’s current push to spend a $6 billion on college-loan relief precisely the sort of rob-from-the-poor-to-give-to-the-rich outrage that any conscientious progressive ought to oppose?

These are questions that even Mitt Romney and his fellow Republicans refuse to pose, as they retreat or temporize concerning the president’s shameless student-loan scam. The big duel in Congress concerns the best way to pay for continuing the subsidized loans, with no real debate about the wisdom of the subsidy itself.

Republicans and Democrats alike feel so intimidated by the brute political power of college students and their families that no one will point out it’s the beneficiaries themselves who ought to cough up the extra money. It’s not unreasonable to suggest that they do so when interest rates revert to their normal, pre-2007 level on July 1st—especially since those students aren’t obligated to begin making those interest payments or retiring their principal until they’ve completed their education or dropped out of school. In effect, our leaders suggest that future millionaire attorneys who graduate from Harvard Law School (as both Obama and Romney did) ought to get reduced payments on their student loans at the ultimate expense of all taxpayers—including janitors who toil away at the very Ivy League campus where the two presidential candidates once matriculated.

For an administration that claims it wants to help those who have been left behind by a crippled economy, it’s hypocritical in the extreme to channel scarce federal funds to students who are moving ahead despite hard times.

The lies surrounding this proposed ripoff ought to embarrass everyone who dutifully recycles them, but prominent reporters, perhaps recalling their own student-loan experiences, repeat the nonsense without blushing. For instance, the notion of crushing student-loan debt hobbling millions of U.S. families counts as an urban legend or deliberate distortion. According to figures from the New York Fed, a full two-thirds of the total student-loan debt is held by people under 30, suggesting that the great majority of borrowing is quickly repaid. President Obama’s example of repaying his debts only at age 43 (when he was already a state senator) would count as atypical.

Moreover, borrowers owe a median of $12,800, a figure that the Associated Press describes as “an amount even advocates for student borrowers acknowledge is usually manageable and more than worthwhile factoring in the economic benefits of a college degree.” Surely, borrowers who owe less than $12,800 don’t need a massive federal rescue to save them from paying at most an extra $34 a month in interest.

Of course, the president prefers to talk about the average loan balance rather than the median, since that average is thoroughly distorted by a handful of big-time borrowers (like the Obamas themselves) who attended the nation’s most expensive universities. As Josh Barro writes at Forbes.com: “A below-market interest rate for Stafford Loans is just another subsidy mechanism…. This pushes students, at the margin, to choose more expensive educational institutions than they otherwise would, and to finance more of their education with borrowing than they otherwise would. These incentives leave students more burdened with debt than they need to be, and they also make them less focused than they should be on price, allowing more tuition inflation.”

The president cites his personal example as illustrating the need for federal help in keeping interest payments artificially low for those who borrowed hundreds of thousands to get blue-chip educations. “We only finished paying off our student loans about eight years ago,” he told an adoring crowd at the University of North Carolina. “That wasn’t that long ago. And that wasn’t easy.” But it shouldn’t have been that hard, either—given the fact that the Obama tax returns (made public on the White House website) show that for at least five consecutive years before they finally retired their loans, the future president and his wife reported income in excess of $200,000 each year. In 2001 and 2002, the Obamas earned $272,759, and $259,394, respectively. What possible argument could they advance for the federal government to deploy taxpayer resources to reduce interest payments by a few hundred dollars for such a prosperous and privileged couple? As Jonathan Karl points out at abc.com, in those years the Obamas would fit the definition of “the rich” or of “millionaires and billionaires” that the president wants to tax at higher rates, not subsidize.

Source: http://www.thedailybeast.com/articles/2012/04/29/student-loan-subsidies-benefit-elites-at-taxpayers-expense.html