Student Loans — Forgive and Forget
One of the great things about America, President Barack Obama told students at the University of Colorado, is that no matter how humble your roots, you still have a shot at a great education. He also told students that his goal is to “make college more affordable.” Alas, the president’s prescription for making higher education affordable seems likely to yield the same results as his plan for curbing health care costs; that is, it is likely to drive prices higher than inflation.
The nation’s next fiscal nightmare may well be a higher-education bubble.
Americans now owe more on student loans than on credit cards. As USA Today reported, America’s student loan debt is expected to exceed $1 trillion this year. Rising costs have left many graduates in a deep hole. Many of last year’s graduates walked away with a diploma and, on average, $24,000 in student loans. The default rate on student loans rose to 8.8 percent in 2009.
Occupy Wall Street activists have been calling for forgiveness of student loans. Congress already passed legislation proposed by Obama to cap some student loan payments at 15 percent of a graduate’s discretionary income and to forgive the balance after 25 years. On Thursday, Obama pledged to lower the cap to 10 percent of discretionary income — with forgiveness after 20 years.
What next, 5 percent and 15 years?
“And we can do it at no cost to the taxpayer,” U.S. Secretary of Education Arne Duncan cooed in a statement.
“That is simply not true,” responded Neal McCluskey of the libertarian-leaning Cato Institute. Taxpayers are on the hook for those loans.
Last week, McCluskey put out a paper that concluded that when government bestows more aid, institutions benefit far more than students. The College Board figured that real average tuition rose some $5,500 for public colleges and $17,800 at private institutions from 1980 to 2010, while total student aid increased comparably, by $8,165. The phenomenon predates this administration. The College Board reports that for the past decade, college tuition and fees have exceeded inflation by 5.6 percent a year. That’s where McCluskey believes increased financial aid goes.
“There is no question,” McCluskey wrote, “that colleges and universities have been raising their prices at a very brisk pace in recent decades, and that those increases have largely nullified aid increases.”