The Spectacle Blog

Obama’s Student Loan Bailout Won’t Help Anything

By on 10.26.11 | 4:28PM

In Colorado today, President Obama announced a program that aims to reduce the debt burden on students with federal loans.

The accelerated "pay as you earn" program, which Obama will authorize through executive order, could benefit up to 1.6 million borrowers and reduce their payments by as much as a couple hundred dollars a month, administration officials said. All remaining debt on the federal loans would be forgiven after 20 years — five years earlier than under current law.

This bailout is a boon for all the students that have taken out loans that they couldn't afford. It's also roughly in line with Obama and the Democrats' overall goal of sending everyone to college, despite the increasing financial burden it takes to get them there and the fact that the United States educates people for longer than anyone else in the world already.

Some facts about this goal:

  • College cost inflation is around 6.5 percent/year for the past 50 years.
  • Starting salaries of college graduates have been stagnant and even fallen in the last decade.
  • Debt per student at graduation has risen from around $9,000 in 1993 to over $27,000 in 2011.

Besides the fact that the massive subsidies have caused students that both can't afford it and can't handle it to go to colleges out of their price range and academic rigeur, the universal-college society has caused a massive bubble of debt to inflate. At the Heritage Foundation, Lindsey Burke notes that Obama is not going to make things any better.

[E]conomist Richard Vedder calls the idea of student loan forgiveness “the second-worst idea ever—the worst was the creation of federally subsidized student loans in the first place."... [i]ncreases in federal subsidies or student loan bailouts shift the burden of paying for college from the student—the person directly benefiting from college—to the millions of Americans who did not graduate from college.

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