When every indicator of stress is screaming ‘bubble’ in the student loan debacle, it would make perfect sense for the government to ignore it and maintain the status quo. As the WSJ reports, the never-ending federal effort to “make college affordable” simply provides the resources to sustain higher prices – especially as an increasing amount of the rising subsidies are pocketed by universities. This policy disaster which results in rising costs, taxpayer losses and over-strapped borrowers is now manifest. So naturally this week Senate liberals will bring to the floor a plan to ensure that the policy continues unchanged (and the CBO-estimated $95 billion losses) – and dismisses a coalition plan that ties student loan rates to 10Y Treasuries, providing some marginal encouragement to students to decide whether their chosen course of study is worth the money.
Government researchers continue to show that federal student loans are hazardous to both students and taxpayers. But Senate liberals don’t seem to care, as long as the money keeps flowing to their constituents in the nonprofit academic world.
As the Senate prepares for Wednesday voting on student-loan subsidies, a coalition that includes congressional Republicans, President Obama and moderate Democrats favors reform that ties the rates on student loans to the 10-year Treasury rate. This protects taxpayers from having to guarantee low fixed rates to students while the government’s own borrowing costs rise. And it provides some marginal encouragement to students to consider whether their chosen course of study is worth the money.
Such taxpayer protections and borrower incentives are sorely needed. The Congressional Budget Office recently estimated taxpayer losses on student loans at $95 billion over the next decade.
But in recent years an historic surge in student-loan debt is changing education for many borrowers from a winning investment into a staggering burden. Such debt has nearly tripled since 2004 and now hovers around $1 trillion, with defaults rising on student loans and other types of debt held by these young borrowers.
Whereas credit scores used to be similar for young people with or without student-loan debt, New York Fed economists find a divergence after 2008. “By 2012, the average score for twenty-five-year-old nonborrowers is 15 points above that for student borrowers, and the average score for thirty-year-old nonborrowers is 24 points above that for student borrowers,” they note in a recent report.
annual Pell grant spending of $34 billion has roughly doubled in the Obama era, or that Uncle Sugar now originates more than $100 billion in annual loans.
As ever, increasing government education funding to students is pocketed by universities in the form of tuition increases. The never-ending federal effort to “make college affordable” simply provides the resources to sustain higher prices.
A policy disaster that results in rising costs, taxpayer losses and overstrapped borrowers is now manifest. So naturally this week Senate liberals will bring to the floor a plan to ensure that the policy continues unchanged. Rates on subsidized Stafford loans would stay frozen at the 3.4% rate that prevailed before a July 1 expiration, with new taxes to sustain them.
Liberals would be happy to accept an even lower rate, or expanded loan forgiveness that shifts more of the losses to taxpayers, or more grant money instead of loans. Anything that doesn’t exert downward pressure on the cost of college is apparently on the table.