hussian obunga on ensuring students are able to commit to higher levels of federally backed student loans

Yesterday, President Obama unveiled his new plan to “ensure students
are able to commit to higher levels of federally backed student loans.”
Essentially, the president has just offered a college student bailout
as the finial initiative of his “We Can’t Wait” economic plan.
Two key provisions offered in the plan (as pointed out by Business Insider):

• People who hold both government-backed private sector student loans and
  direct loans issued by the government will be able to consolidate those
  debts in one government-backed loan, thereby lowering interest rates
  and reducing monthly payments. The administration estimates this will
  affect about 5.8 million people.
• The plan will accelerate income-based payment programs already
  passed by Congress, which allow college graduates to cap their payments
  at 10 percent of their income, rather than the existing 15 percent cap.
  Under Obama’s executive rollout, the new cap, originally scheduled to
  take effect in 2014, will take effect in 2013 for an estimated 1.6
  million students and recent graduates.

But will these provisions really come close to dealing with the
nearly $1 trillion in outstanding college debt? Some reports say “not
even close.”
Daniel Indiviglio of The Atlantic put together an interesting report that calculates the impact of the president’s proposals:


Consolidation: The first would
clearly be the most significant [impact], because it is aimed at
helping more student loan borrowers. How much would an interest rate
reduction of up to 0.5 percent affect payments?
For the average borrower, the impact would be small. In 2011,
Bachelor’s degree recipients graduating with debt had an average balance
of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.




Using these values as the high and low bounds of average student debt
over the last ten years, the monthly savings for the average student
loan borrower would be between $4.50 and $7.75 per month. Clearly, this
isn’t going to save the economy.
Payment Limits: . . . the government
already has a program for borrowers to reduce their student loan
payments to a ceiling of 15 percent of their income. At this time, just
450,000 borrowers are participating. Clearly, all of those
participants would benefit from lowering the max payment to 10 percent.
But how many others would?
Student loan balances have really only ballooned over the past
decade. So this change would affect very few Americans over the age of
32. For the young adults who it may effect, we must remember that
educational attainment has some correlation to income. Those with the
most debt will have attended business school, medical school, or law
school. Most of those people will also have higher incomes, making them
ineligible.
Loan Forgiveness: Of all these parts of
Obama’s executive order, the loan forgiveness aspect will have the
least impact. By moving the timeline from 25 to 20 years, it could be
significant in the long run — but it won’t be felt for decades.
Remember, 82 percent of the current student loan debt outstanding was
accrued in just the past decade. So it will be at least another 10
years before any of those borrowers have hit the 20-year mark in their
student loan payments.
And outside of the fact that his proposals may have little to no
economic impact, Peter Schiff of Euro Pacific capital points out that
the initiative would actually cause “college tuition increases to not
only continue but to accelerate,“ and that ”Obama would be turning
higher education in to a third-party payer system (not too dissimilar
from our current health care system – which is also characterized by
outsized cost increases).”
But what does this mean to the average U.S. taxpayer? Schiff responds:


Under this new system, colleges might charge whatever
they want because their customers simply turn the bill over to the U.S.
taxpayer who has no say in the transaction. Under such a system what
incentive would a kid have to live at home and go to a community
college? Why not attend the most expensive university that taxpayer
money will allow?
With all of these details taken into account, some have claimed that
the introduction of this part of the president’s economic plan is little
more than a shrewdly calculated attempt to “reach out to young,
educated voters, a key constituency for Obama’s 2008 campaign who now
form the core of the Occupy Wall Street movement.”http://www.theblaze.com/stories/%ef%bb%bfreport-obama%e2%80%99s-college-loan-plan-would-save-avg-borrower%e2%80%a6%e2%80%99between-4-50-and-7-75-per-month%e2%80%99/comment-page-2/?corder=desc#comments

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