On Obama's Student Loan Plan

Today in Washington, D.C. - Oct 27, 2010
The US Senate is not in session this week' it is Senate constituent work week.

Yesterday,the House passed (405-16), repealing a requirement that governments withhold 3% of payments to contractors in the 2010 health-care law. The tax would have created an estimated $11 billion in windfall federal tax revenue. The House intended to close this revenue gap via another bill tightening eligibility requirements for Medicaid and other health programs. The Democrat controlled Senate did not agree on an offset to repealing this 3% before adjourning for this week's recess. If the Senate next week takes up the House bill and passes it as is, it is expected that President Obam would sign the repeal bill.

The New York Times writes, “President Obama on Wednesday ended a three-day Western trip that was heavier on politics than policy, rallying thousands of college students whose enthusiasm belied the struggle he will have to win this state again in 2012. Continuing his ‘we can’t wait’ theme against Republicans’ opposition to his legislative agenda, Mr. Obama promoted the latest in what will be a series of executive actions not requiring Congress’s approval — new rules to expedite and ease repayment terms for graduates burdened with federal student loans.”

But The Atlantic’s Daniel Indiviglio took a look at President Obama’s proposals and found them underwhelming, at best. He writes that the president’s plan would “clear the way for borrowers with direct government loans and government-backed private loans to consolidate their balances. The White House estimates that this will cut the effective interest rate on student loans by up to 0.5%. . . . How much would an interest rate reduction of up to 0.5% 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. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.”

Indiviglio concludes, “By calling for these measures, President Obama seeks to respond directly to young Americans stressed about their student loans. . . . But from a practical standpoint, these executive orders won’t have much of an impact.”

On Fox News last night, Charles Krauthammer was characteristically blunter: “It’s entirely incoherent. . . . What [President Obama] spoke about today was tweaking the student loan program, which he now controls. In a way, that’s rather astonishing. The numbers were run by an economics correspondent today in The Atlantic magazine. And it turns out what he is offering these students is between $4.50 and $7.70 a month of relief. . . . If his audience had known how miniscule is the benefit, he would have been laughed out of that auditorium.”

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