How come everything this President proposes eventually turns out hurting our economy? The federal student loan program that he has touted on campuses nationwide has become so costly to taxpayers that he now finds he has to reform it. All it did was to garner him the youth vote in the 2012 campaign (which it was designed for) at the expense of we the taxpayer. It has done nothing but to drive our youth toward pursuing jobs with the government and non-profits, and dis-incentivize them to pursue jobs in the private sector, thus increasing the issue of income inequality which he says is the great moral dilemma of this century.
It also has proven that when you give people an incentive
not to repay a loan, more won’t repay. Most of these student loans are issued
regardless of ability to repay. So loose is this form of credit that in the
moribund Obama economy it has become a vehicle to even fund basic living
expenses, with thousands of borrowers consuming aid even when they’re not
enrolled in courses.
The immediate problem for you and me concerns the Obama “Pay
as You Earn” program which has expanded the number of borrowers and sweetened
the terms. It allows students to borrow an unlimited amount and then cap
monthly payments at 10% of their discretionary income. If you work in the
private sector unpaid loans are forgiven in 20 years, however, if you chose to
work in government or for a non-profit, the Washington sugar daddy forgives your
loan in 10 years. For a community organizer in South Chicago who goes to
college and then grad school, the debt can be as high as $150k courtesy of the
U.S. taxpayer. Now get this, if you go into a government job the forgiven debt
doesn’t have to be reported to the IRS as income. Therefore, if you follow the
job path of Mr. Obama, you can pick up $150 grand, tax free! How’s that for picking winners and losers?
The real winners of course are the universities, who have
seen school debt explode with this program. In fact, some schools have gotten
so creative that they now offer to make the student’s monthly payments under
the “Pay as You Earn” program while simultaneously raising tuition costs, so
the loans actually function as federal grants. This program was originally
estimated to cost $1.7B in 2010 and now is expected to cost $7.6B in 2014. You
can bet it will accelerate even faster after the fall election.
While students may appear to be getting the freebie, those
who likely have little wealth are being given an enormous incentive to pursue
careers in government or low paying non-profits. This will drive them away from
careers where their natural ambition and talent may have driven them to higher
income options. It also encourages a mind-set where it is no big deal to
forfeit your loans. We already saw what that attitude did to the economy in
2008.
Leave it to this Administration to find another way to move
us towards a statist economy and generate more college graduates than there are
jobs to satisfy. Mercy me!
