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Student Loan Lament
Obama Puts Bandaid on Student Debt Crisis

Obama announced an executive order to expand access to the Pay As You Earn program on Monday, thereby reducing monthly payments for millions of student debtors. The WSJ reports:

President Barack Obama, speaking at the White House, said he would take executive action to expand a program passed by Congress in 2010 to set borrowers’ monthly student-debt payments as a share of their income. Under the program, borrowers who took out loans after 2007 make payments equivalent to 10% of their discretionary pay-annual income above 150% of the poverty level.

That leaves out millions of borrowers who took out loans before 2007. Mr. Obama is proposing to expand the program to those borrowers, a move he said would lower payments for five million people.

Back in November 2012, when the program was finalized, the Education department said it would limit eligibility in order to keep costs down. Why is this program so expensive?

The program drives up costs because it lowers student-loan payments and then allows borrowers to have huge piles of debt forgiven after a certain period. Borrowers working in the private sector make payments for 20 years and then have any remaining balance forgiven. For public-sector workers, the balance is forgiven after 10 years of payments.

The program gives students an incentive to attend the priciest schools, knowing full well they may not have to pay back most of the cost. And, as we wrote in April, the results weren’t surprising: students who attended pricy schools received a disproportionate amount of the total aid that loan forgiveness programs dispense (go here for our enlightening chart).

Obama’s newest edict will play well with liberals, and he has also backed Elizabeth Warren’s proposal to let borrowers refinance student loan debt at lower rates. As we’ve said before, however, the way to solve the student debt crisis is not to airdrop more federal money and hope it buoys up students who are already sunk into debt. Pressuring schools to cut costs and lower tuition ought to be the highest priority.

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  • Andrew Allison

    Vote-buying, pure and simple.

    • LarryD

      Pretty much, yeah. Gentry Liberals benefit, poor and middle class get the shaft. A successful Progressive policy.

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