During a speech at UNLV this week, Hillary Clinton discussed higher education and her opinion that “more needs to be done to assure young people can achieve their dreams and free students from debt.”
While making higher education more affordable is certainly a worthwhile endeavor, the means by which the Democrats have made changes — and continue to push for more change — to the student loan system will cause even higher tuition costs, unsustainable taxpayer debt, and create another rail of entitlement.
The first wave of detrimental change came in 2010 with the Pay-As-You-Earn Program implemented in 2010. Essentially, PAYE has repayment options based on 10% of discretionary income. However, if the payment doesn’t cover the accruing interest, the government pays your unpaid accruing interested for up to three years from when you begin paying back your loan under the PAYE program.” That means the taxpayer.
Obama expanded that 10% income cap this past June with an Executive Order. Its purpose is to extend “such relief to an estimated five million people with older loans who are currently ineligible”, according to the New York Times.
Though this Executive Order — and its 2010 law counterpart — may sound well and good, financially it is a disaster. The 10% income repayment does not help any young person get off on a solid financial footing. Likewise, because some sectors allow for loan forgiveness after a period of time, that amount gets written off by the federal government, thereby substantially adding to the federal debt.
And what of the federal debt? Earlier this summer, CNS News compared the current cumulative outstanding balance on federal student loans to the balance owed in January 2009, and found it had skyrocketed 517.4 percent:
“The balance owed as of the end of May was $739,641,000,000.00. That is an increase of $619,838,000,000.00 from the balance that was owed as of the end of January 2009, when it was $119,803,000,000.00, according to the Monthly Treasury Statement”.
They then compared it to George Bush’s tenure:
“During President George W. Bush’s time in office, the amount of outstanding loans increased from $67,979,000,000.00 in January of 2001 to $119,803,000,000 in January of 2009, an increase of 76.2%. This means that under President Obama, the amount of federal direct student loans increased 579% more than under President Bush.”
The most influential factor in this rapid rise of student loan debt is the PAYE program repayment terms. Besides the 10% option, students also have two other possibilities of loan help, known as “forgiveness:”
1) The balance of your loan can be forgiven after 20 years if you meet certain criteria, OR 2) Your loan can be forgiven after 10 years if you go to work for a public service organization (known as Public Service Loan Forgiveness, or PSLF).
The Wall Street Journal recently discussed the impact of “loan forgiveness” when it highlighted a report from the New America Foundation, which analyzed the PLSF impact. The WSJ noted that the report found “it will not be a small population of borrowers standing in line for this gift from taxpayers. The federal government estimates that a quarter of all jobs may qualify”.
Furthermore, the study concluded that:
“it could become common for the government to pay for a student’s entire graduate education via loan forgiveness” if those kids take jobs at a nonprofit or in government. The new payment terms for such borrowers “are unlikely to cause many graduate and professional students to fully repay their loans—even if they earn a competitive salary in their chosen careers or a salary that places them among upper-income Americans.”
“This will likely provide an incentive for graduate and professional students to borrow more rather than less, particularly for some professions. It should also make graduate students less sensitive to the price of a graduate or professional degree, allowing institutions to charge higher tuitions, especially for certain programs like healthcare, social work, education, and government, where borrowers would go on to qualify for PSLF.”
The government meddling in higher education and loan programs has perpetuated more crises, which in turn has created more government “fixes”, and hence, a new-tier of entitlements — this time, for education. And that’s not all. Senator Elizabeth Warren proposed a bill earlier this year allowing student loan holders to refinance their loans at a lower rate. How? You guessed it: a bailout to be paid for by yet another tax on the wealthy. President Obama, of course, has endorsed this legislation, but it has yet to pass Congress.
The long-term effect of such an education policy is that a new generation of youth will be raised to pursue careers in the public and non-profit sectors by the dangling carrot of free education money — instead of slugging it out in the private sector.
Do we need more regulators and bureaucrats? Where is the encouragement for innovation, for entrepreneurship, for capitalism? Where is the risk-taking? Why risk-take when you can get your education paid for by taxpayer-funded loan forgiveness and a comfortable government or non-profit job?
Small businesses have been the backbone of America. Our country was built upon those who were willing to invest their time and money to become great. This approach to education is undeniably detrimental to our future by saddling taxpayers with unseemly debt while discouraging our young people from seeking private enterprise. That is not the American Dream.