Obama Broke Student Loan Program Too

"Obama keeps trying to portray the student loan crisis as a problem suffered by students burdened by a mountain of debt when they graduate," writes Investor's Business Daily. But the greater crisis, the editors' argue, is the explosion of debt owed the federal Treasury as a result of Obama's federal takeover of the loan program.

Obama sold this government takeover as a way to save money — why bear the costs of guaranteeing private loans, he said, when the government could cut out the middleman and lend the money itself?

The cost savings didn't happen. In fact, the Congressional Budget Office just increased its 10-year forecast for the loan program's costs by $27 billion, or 30%.

IBD's chart (above) shows the rapid explosion in student loan debt owed to the federal Treasury, which totals nearly $1.2 trillion today and "now exceeds that of auto loans or credit card debt."

Although "average student loan debt is only a little over $20,000" (an amount IBD editors argue could be paid back within a decade by "a student who gave up his $5-a-day Starbucks habit"), less than half of student debt owed the federal government is being paid back.

Through words and actions, Obama has encouraged irresponsibility on the part of student borrowers. He constantly talks as if student debt were an unfair burden they unknowingly had foisted upon them.

At the same time, he's made it easier and easier to avoid paying back student loans in full.  Earlier this year, for example, Obama expanded eligibility for his "pay as your earn" program, which limits loan payments to 10% of income, with any debt left after 20 years forgiven.

Students got the message. The St. Louis Fed reports that 27.3% of student loans in repayment are at least a month behind in payments. That's a far higher delinquency rate than any other kind of debt, and it's significantly higher than the delinquency rate 10 years ago. ...

A 2013 Consumer Financial Protection Board report found that less than half of this federal loan money was actually being paid. About 30% was held by borrowers still in school or in a grace period, another chunk in deferment or forbearance, and almost 14% was in default.

Student Loan Debt Blame

"Who is to blame for soaring U.S. student loan debt," asks Fox Business News' Elizabeth MacDonald, "that now surpasses credit card and auto-loan debt, at an estimated $1 trillion, according to the Consumer Financial Protection Bureau?" Could it be the colleges? Consider this:

• More than 75 colleges and universities sit on record endowments in the tens of billions of dollars from donations made by people who believe their money is going towards cutting tuition costs. ... But one estimate shows that colleges only spend an average of about 3% of their endowments on tuition.
• Census data show that, as of 2005, colleges and universities employed more than 675,000 full-time faculty members — but 756,000 administrators, counselors, accountants, alumni relations officials, and attorneys, among others. Between 1976 and 2007, the proportion of administrators to students doubled at colleges nationwide.
• As part of their collective flight from reality, too many colleges have locked themselves into a vicious cycle where "you raise tuition, so you can give out more aid, so you can raise tuition," Jacqueline E. King, director of federal policy analysis at the American Council on Education, a Washington education lobby group, has said. "Institutionally based financial aid accounts for about one-third of all the increases in tuition," David L. Warren, president of the National Association of Independent Colleges and Universities has said. "It's the driving force behind rising fees."

Or how about the government, "whose well-meaning student aid fuels higher tuition costs which relies on more student aid"?

• The College Board estimates more than $60 billion in financial aid—most of it from the federal government—is annually available to students as of a few years ago. But 60% of that aid was in the form of loans, up from 40% in 1980.
• Mark Zandi, chief economist at Moody's Analytics, has said government loans and subsidies are not cost-effective for taxpayers because "universities and colleges just raise their tuition. It doesn't improve affordability and it doesn't make it easier to go to college."
• The dilemma, say economists, is a simple supply and demand problem. Colleges can "raise tuition because they can," David Breneman, dean of the Curry School of Education at the University of Virginia, has said. When the government subsidizes something, producers respond by raising prices to soak up as much of the subsidy as they can.

The danger here is taxpayers could be on the hook for belly flopping student loans," writes MacDonald, "since eight in 10 of these loans are government-issued or guaranteed, a support that increased after the government stepped in to help this market after it iced over during the financial crisis in 2008."