The news in the Wall Street Journal this week about college loans was unsurprising. A special plan passed by the Democratic Congress in 2007 and expanded by the Obama Administration, “Pay As You Earn,” has grown wildly, “nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion,” the story reports, citing Department of Education figures.
And why shouldn’t more and more students sign up? An op-ed the next day in the Journal explains how it works. In certain cases, students may borrow as much as they need or want, and once they graduate and go to work, they can limit monthly payments to 10% of their income. The Federal government makes up the difference. And that’s not all. If they work in the private sector, those payments end entirely in 20 years, the remaining balance covered by the taxpayers. And there is another component: if they work in the public sector or for non-profit organizations, loan payments terminate in 10 years.
That final ingredient is a thoroughly ideological one, a means to expand the state. It’s a neat formula. The Federal government pays for part of your education, and if you go to work for the Federal (or other government), you pay less! That’s a clever way to recruit youths to the statist mentality, and the carrot of pure cash is hard for 20-year-olds to resist. On those terms, why not borrow $120K instead of $50K? And why not love “Uncle Sugar” (as the Journal says) and favor him over free markets for the rest of your life? And vote Democrat?
The purely political nature of the program was signaled in a speech President Obama delivered at University of Colorado in April 2012 during the election season. Obama knew he had to mobilize the youth vote as he had in 2008, and continuing weakness in employment for college grads threatened to quash the enthusiasm and keep the youth vote home in the coming November. So he scheduled appearances at several campuses and delivered promises like this one to idolatrous crowds.
First, he yukked-it-up in his customarily cool manner:
“Now, I’ve just come from the University of North Carolina Chapel Hill — (applause.) I was talking to another good-looking group of students. Jimmy Fallon and I taped his show there tonight — make sure to tune in. (Laughter.) But we saved the prime-time event for Boulder. (Applause.)”
Then he recounted his and Michelle’s experience with student loans:
“And I want to point out — listen, I know about this firsthand. Michelle and I, we know about this firsthand. This is not something I read in a briefing book. (Laughter.) This is not some abstract idea for us. We’ve been in your shoes. When we graduated from college and law school, we had a mountain of debt, both of us. That means when we got married, we got poorer together. (Laughter.) We added our assets together, and they were zero. (Laughter.) And then we added our liabilities together, and they were a lot. (Laughter.)”
And then came the policy boast:
“And then last fall, I acted to cap student loan payments faster, so that nearly 1.6 million students who make their payments on time, they have the option of only paying 10 percent of their monthly income towards loans once they graduate. And that means if you decide to be a teacher, or you decide to be a social worker, or you’re going into a profession that doesn’t pay a lot of money, you still have that option, because you know that your monthly payment will be manageable. (Applause.)”
It was a clear example of clientism, a “vote-for-me-and-you’ll-get-this” pledge, and the students loved it. We may judge their reaction as an indication of how far civic virtue has been destroyed by self-interest and entitlement programs.
The current finances of the program now indicate just how irresponsible that promise was. According to the White House’s own calculations, the cost of the program in 2013 was $3.5 billion. In 2014, it more than doubled to $7.6 billion! The news story cites a Brookings Institution report claiming that the most popular plan could cost taxpayers $14 billion each year. The original purpose of the legislation was to assist only a small number of students, the “neediest borrowers,” and not encourage colleges to raise tuition, but the current rates of students enrolling in the debt forgiveness plan prove the naivete of that intention.
One 29-year-old cited in the story graduated from law school with $172,000 in debt and currently makes $60,000 a year. That means he will have $225,000 of debt forgiven after ten years. That was the idea from the start, he says: “My intent the whole time in going through law school was to take advantage of this program.”
The remarkable thing about this whole situation is that inability of backers of it to realize what would happen once it got underway. Did they really expect the old perverse-incentives factor wouldn’t arise? Late-adolescents were going to borrow too much and schools would raise their prices–OBVIOUSLY.
Let’s not call this ideology–we’re past that. It is flat incompetence and mismanagement, an embarrassing inability of statists in the White House and Congress to act as responsible stewards.
