President Barack Obama's order on student loans is little more than a Band Aid. (Bill Pugliano / Getty Images)
Maybe President Barack Obama is missing his Harvard days. He definitely seems to have college on the brain. Or maybe he understands that energizing young voters is key to the Democrats’ hopes in the fall election.
Obama’s executive action on Monday to ease the student loan burden is his latest foray into higher education and won’t fix the real financial problems that face college students and graduates.
Obama has spent the past year trying to manipulate the cost of student loans — while also calling for a college rating rating system he dubbed “datapalooza” and pressuring colleges to take a harder line against allegations of sexual assault.
None of the efforts are likely to produce real benefits for students, least of all his crusade against student loan debt.
In fact, the short-term student loan solution the president pronounced early this week is better seen as a midterm election year gimmick. Obama expanded eligibility for student loan repayment limits, allowing more borrowers to cap their monthly payments at 10 percent of their income.
In what’s become his favorite excuse for acting unilaterally, Obama argued that since Congress wasn’t moving fast enough, he was forced to act by executive order.
“I think the whole thing was a very cynical election year ploy to energize the Democratic Party base,” says Richard Vedder, a professor of economics at Ohio University and director of the Center for College Affordability and Productivity.
Sen. Elizabeth Warren, D-Mass., also has pushed for legislation that would reduce interest rates on some student loans, but Senate Republicans blocked her bill this week. She wanted to pay for the lower rates with the so-called Buffett Rule, which sets minimum tax rates for people making more than $1 million.
Vedder and others believe federal interference in student loans is one reason college tuition continues to soar. The influx of federal money has enabled colleges to forgo fiscal restraint and instead raise tuition, knowing costs would be passed along to taxpayers.
Student loan debt has topped $1 trillion. The average graduate in 2014 left college with $33,000 in loans. That’s twice the burden students faced 20 years ago. During that time, federal financial aid per student almost tripled.
Since government has assumed control of issuing and servicing federal student loans, early in the Obama tenure, it’s taxpayers who assume the burden when students default.
Obama’s plan to tie debt repayment to income levels provides a perverse incentive for graduates to earn less and carry the debt for longer than necessary.
Rather than tackle the underlying problems, Obama is strengthening the rationale that individuals buried under college debt are somehow blameless.
No one forces a student to take a loan, or multiple loans, that they lack the ability to repay. Making students feel victimized because they are graduating with huge debts is removing the responsibility from those choices.
“It’s worsening the problem,” Vedder says, “and inviting fiscally irresponsible behavior by students.”
The president should concentrate on pushing colleges to control costs and find innovative and more efficient ways to deliver an education, while not rewarding students for making risky financial choices.