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Obama’s Democrats want to stick Republicans with student loan interest rates they themselves mandated.
On Friday, in response to President Barack Obama’s latest divide-and-conquer tactic, the House of Representatives will vote on a measure to prevent interest rates on subsidized Stafford (college) loans from doubling from 3.4 percent to 6.8 percent, covering the $5.9 billion one-year price tag of the loan subsidy with money from a preventative care “slush fund” created by Obamacare. Not surprisingly, Democrats suggest raising taxes to cover the cost of their latest vote-buying idea. Following Friday’s vote, expect to hear Nancy Pelosi and MSNBC talking heads squawking that Republicans want Americans to get cancer.
Since the “Republican War on Women” claim and the Buffett Rule are both failing to sway voters, Obama’s current bright idea is to scare Nanny State-coddled “it’s our right!” college students (and their slightly less entitled, mostly middle class parents) about evil Republicans wanting to raise interest rates on college student loans.
Earlier this week, our hyper-political president took his transparent vote-buying argument to major colleges in three political swing states: The University of Colorado, the University of Iowa, and the University of North Carolina.
The fear-mongering talking points are consistent: “The interest rates on student loans will double unless Congress acts by July 1st.” Further, Obama says, “For each year that Congress doesn’t act, the average student with these loans will rack up an extra thousand dollars in debt.”
Note Obama’s clever rhetoric: The “average student” will hear the threat as being a thousand dollars a year in additional interest payments. In fact, what the president is saying is that the total added cost to a student for a single year of college debt at higher interest rates is $1,000 over the life of the student loan. Even that is an overstatement.
According to the Project on Student Debt, of the two thirds of college graduates who finished school with debt, the average debt amount was $25,250. However, only about 35 percent of this amount is in the form of subsidized Stafford loans, the only loan type that may see its interest rate rise, from the current 3.4 percent to 6.8 percent, if Congress does not reinstate the lower rate. The other major federal education loan types, including unsubsidized Stafford loans and “PLUS” loans, already have interest rates ranging from 6.8 percent to 8.5 percent.
Mark Kantrowitz, of the student loan website finaid.org, in an NPR interview, describes the impact of allowing the subsidized loan rate to return to its 2006 level: “The average, one-year subsidized Stafford loan is about $3,300. The average subsidized Stafford loan debt at graduation is about $9,000. So a typical student for one year’s loan will pay an additional $670 over a 10-year repayment term…. And on that $9,000 cumulative debt, if they continue for the full education, that would be about $1,800 of additional interest paid.”
The president suggests that the extra cost to students is effectively a tax hike; it isn’t — but granting his argument, it may be the only tax hike he has ever opposed.
It is an article of faith with Democrats that the Bush tax rate reductions must not be extended, that we should return to the higher income tax rates that existed during Bill Clinton’s presidency. But we’re told it would be tantamount to child abuse to allow the student loan rate to revert to 6.8 as planned in the Democrats’ College Cost Reduction Act of 2007, well below the 7.6 percent average rate in the Clinton years. (The law was written and passed by Democrats. All of the 149 “no” votes in the House of Representatives were by Republicans. No doubt it was written to create this very issue at this very time.)
Even 6.8 percent would be cheap given the staggering rate of student loan default in this job-challenged economy. A Department of Education study released in September 2011 reported that just among the “cohort” of student loan borrowers whose first repayment was due in the year between October 1, 2008 and September 30, 2009, 8.8 percent of them had defaulted before September 30, 2010.
The Obama non-recovery is doing great damage to the job prospects of recent college graduates. According to the Associated Press, “About 1.5 million, or 53.6 percent, of bachelor’s degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years.”
The unemployment rate among college graduates between the ages of 20 and 24 reached a modern high of 9.1 percent in 2010. It is no wonder that the current 8.8 percent default rate among the newest college loans represents the continuation of a painful trend, up from 7.0 percent in 2008, 6.7 percent in 2007, and 5.2 percent in 2006. And these numbers substantially understate the lifetime default risk for student loans, which was over 17 percent in 2009.
What interest rate would you charge on a loan that had such a high chance of default, and particularly if you had to give a loan to a student of the Missouri School of Barbering and Hairstyle, one of the five schools “subject to sanctions for cohort rates that either exceeded 25 percent for three consecutive years, exceeded 40 percent in the latest year, or both”?
Cohort default rates for 2009 at for-profit colleges are a stunning 15 percent, as compared to 7.2 percent for public colleges and 4.6 percent for private (non-profit) colleges. The lifetime default rate for “two year proprietary” colleges is a jaw-dropping 49 percent, and has not been below 47 percent for more than five years. It makes one wonder about the efficacy of for-profit colleges, but it makes one wonder even more why the risk associated with college choices and costs should be borne by taxpayers rather than by the student, his family, and whomever they can convince to give them a loan.
Student loans cannot generally be discharged in bankruptcy, and, according to Mark Kantrowitz, the government typically ends up recovering 85 cents on the dollar even from “defaulted” loans. This can include garnishment of up to 15 percent of a person’s income, including income from Social Security retirement and disability payments (the latter troubling Mr. Kantrowitz greatly). He also noted, in an interview for this article, that “government profits from these loans, but is not only focused on profit” whereas credit-underwritten private sector (and not federally guaranteed) loans tend to be less available to minority and low-income students. Some have argued that the financial incentives for the Department of Education cause them to want students to default. Nothing is impossible in the world of unintended consequences of do-gooder government legislation.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?