President Obama has urged lawmakers to provide relief on student loan debt by preventing interest rates for federally subsidized loans from doubling. Conservative media have responded by ignoring the economic benefits of such a program and instead claiming Obama is trying to "bribe" college students with "gimmicks" and "giveaway[s]" in an effort to get reelected.
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Obama Pushes For Extension Of Reduced Interest Rates On Student Loan Debt
ABC News: "White House Launching A Major Campaign" To Keep Federal Student Loan Rates At Current Levels. From an April 20 ABC News article titled "Obama Makes Student Loan Rates Next Big Fight":
The White House announced Friday that it is launching a major campaign to keep rates on federal Stafford loans at their current levels -- 3.4 percent -- beyond July 1, when by law they are set to double.
The rate change would impact an estimated 7.4 million students, who would each see an additional $1,000 in debt per year at the higher rates, according to the administration.
The College Cost Reduction and Access Act, passed in 2007, gradually phased down rates from 6.8 percent over each of four successive academic years, but mandated that the cuts would expire in 2012. [ABC News, 4/20/12]
Right-Wing Media Respond By Attacking Obama For Proposed Student Loan Relief
Fox's Tantaros: Obama Is "Bribing Generations" To Get Reelected. On the April 23 edition of Your World with Neil Cavuto, Fox News host Andrea Tantaros accused President Obama of trying to "bribe" college students by pushing for lower interest rates on student loans:
TANTAROS: Well, I think the president already essentially bailed out a lot of college students, with his forgiveness act back in October where he said: "Look, I'll take your 15 percent payments down to 10 percent, and then after 20 years the government will pick up the tab." Well, Neil, what's the incentive to pay it back if the government is going to pick up the tab? And frankly --
NEIL CAVUTO (host): In other words you'll wait it out, you'll see what happens.
TANTAROS:Well exactly. And what's the incentive for universities that are just crushing parents and students with these rising tuition rates? What's the incentive for them to keep these rates in check if there's all this easy credit out there. And I've got to say easy credit, I don't have to tell you that's what got us into the mortgage meltdown. Now we have a higher education bubble that the president keeps inflating. I mean his slogan is winning the future, it should be mortgaging the future.
CAVUTO: But he'll get some adjustment here. He'll get a cap on these interest rates, and it might start at [unintelligible] but I suspect if you include everybody, we're talking ten times that figure.
CAVUTO: So where does this go?
TANTAROS: I think eventually it goes on the federal balance sheet and it goes to the taxpayer. Now I don't want to sit here and argue for higher interest rates, and I know Mitt Romney supports this, but Neil, unless these kids don't have jobs, or these students have jobs, they're never going to be able to pay back these loans.
So he can try and bribe them all he wants with lower interest rates, but if they don't have a job -- a real job, right, not this underemployment problem that we're seeing where kids have degrees and they're becoming baristas, they're not going to be able to pay off these student loans. And then they go right on to the federal balance sheet, which is already bloated, and already we're going to have to pay that back.
So I think he's just rearranging the deck chairs on the Titanic with this one. And he's doing it to get reelected. So again, he's just bribing generations. [Fox News, Your World with Neil Cavuto, 4/23/12, via Media Matters]
Limbaugh: Proposed Student Loan Relief Is A "Push To Try To Buy The Youth Vote." From the April 25 edition of Premiere Radio Networks' The Rush Limbaugh Show:
LIMBAUGH: Now this student loan stuff is the focal point of Obama's speeches that he's making to youths wherever he goes. He talked about it a lot yesterday. Speaking of Obama's push to try to buy the youth vote by giving them free college tuition, remember now that we mentioned this yesterday, the interest rate increase is coming up for a vote on July 1 because the Democrat-controlled Congress in 2007 wanted it that way. [Premiere Radio Networks, The Rush Limbaugh Show, 4/25/12, via Media Matters]
Washington Times: Obama's Student Loan Campaign Is A "Gimmick" That "Panders For Youth Votes." From an April 24 piece by Washington Times senior opinion pages editor Emily Miller titled "Barack's taxpayer-funded college tour: Student-loan campaign gimmick panders for youth votes":
President Obama hit the campaign trail on Tuesday to win back the vote from disaffected 20-somethings who have seen neither hope nor change during his term of office. Taxpayers are footing the bill for a three-state college tour to push Congress to lower interest rates on student loans.
The cost of education keeps going up because when Uncle Sam is picking up the tab, universities have no incentive to economize. Republicans have neutralized Mr. Obama's manufactured campaign gimmick by going along with a one-year extension of rates. Ultimately, the solution is to get the government out of the student-loan business entirely and let the market take care of providing an affordable education. [The Washington Times, 4/24/12]
Breitbart.com: "This Is Just Another Obama Giveaway." From an April 24 Breitbart.com post titled "Obama To Students On Loan Debt: 'Can I Get An Amen?' ":
This is just another Obama giveaway, just another stop on his "I have your back, now you have mine" tour. Only he doesn't have students' backs. Half of new college graduates are slated for underemployment this year. That's thanks to him and his Keynesian friends in Congress. Can I get an amen? [Breitbart.com, 4/24/12]
Student Loan Debt Is A Growing Burden For Students And Graduates
New York Fed: Student Loan Debt Surpasses Total Credit Card And Auto Loan Debt In The United States. A March 5 report by the Federal Reserve Bank of New York, titled "Grading Student Loans," looked at the growing student loan debt in the United States, and estimated the outstanding student loan balance stood at $870 billion, surpassing both credit card and auto loan debt. From the report:
The outstanding student loan balance now stands at about $870 billion, surpassing the total credit card balance ($693 billion) and the total auto loan balance ($730 billion). With college enrollments increasing and the costs of attendance rising, this balance is expected to continue its upward trend. Further, unlike other types of household debt such as credit cards and auto loans, the student loan market is incredibly complex. Numerous players and institutions hold stakes at each level of the market, including federal and state governments, colleges and universities, financial institutions, students and their families, and numerous servicers and guarantee facilitators. [Federal Reserve Bank of New York, 3/5/12]
U.S. Department Of Education: Student Loan Default Rate At 8.8 Percent -- The Highest It Has Been In More Than A Decade. The U.S. Department of Education announced in September 2011 that the latest national student loan cohort default rate is at "8.8 percent." This is an increase from the 7.0 percent rate from the previous fiscal year, and is the highest rate in more than a decade. The cohort default rate is defined as "the percentage of borrowers who enter repayment in a fiscal year and default by the end of the next fiscal year." From the announcement:
The U.S. Department of Education today released the official FY 2009 national student loan cohort default rate, which has risen to 8.8 percent, up from 7.0 percent in FY 2008. The cohort default rates increased for all sectors: from 6.0 percent to 7.2 percent for public institutions, from 4.0 percent to 4.6 percent for private institutions, and from 11.6 percent to 15 percent at for-profit schools.
The rates announced today represent a snapshot in time, with the FY 2009 cohort consisting of borrowers whose first loan repayments came due between Oct. 1, 2008, and Sept. 30, 2009, and who defaulted before Sept. 30, 2010. More than 3.6 million borrowers from 5,900 schools entered repayment during this window of time, and more than 320,000 defaulted. Those borrowers who defaulted after the two-year period are not counted as defaulters in this data set. [U.S. Department of Education, 9/12/11, accessed 4/25/12]
Failure To Deal With Student Loan Debt Will Put A Strain On The Economy
Economist Dean Baker: Student Loan Relief Could Create Tens Of Thousands Of Jobs. In an email to Media Matters, economist Dean Baker pointed out that "recent grads are likely to spend the vast majority of money they save on interest" and therefore keeping interest rates low could translate into tens of thousands of jobs:
In a depressed economy, we want to do whatever we can to increase demand. Most recent grads are likely to spend the vast majority of the money they save on interest. If we lowered the interest burden on $1 trillion in student debt by 1 percent, this would free up $10 billion a year to be spent. That would imply somewhere around 130,000 jobs.
Now, as a practical matter, nothing on the table would have that much impact. Students are not paying interest while in school and even when they graduate, nothing on the table would lower interest on all outstanding debt. Still, if [they] got one-third of this [sic] savings in a year or two, we are still talking about more than 40,000 jobs. [Email to Media Matters, 4/24/12]
Washington Post: "Student Loans Seen As Potential 'Next Debt Bomb' For U.S. Economy." From a March 10 Washington Post article titled "Student loans seen as potential 'next debt bomb' for U.S. economy":
William Brewer, head of NACBA [the National Association of Consumer Bankruptcy Attorneys], has said, "This could very well be the next debt bomb for the U.S. economy" -- something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.
"Obviously, in the short term, student loan defaults are not going to have the same ripple effect through the economy that mortgage defaults did," Brewer said. "My concern is that the long-term effect may be even graver, because people who need student loans to try to get a higher education or retraining" will be unwilling to run the risk of taking out a student loan.
Moody's Analytics has evaluated the chances of a student loan crisis.
"Despite its rapid growth even as credit quality weakened during and after the recession, student lending is not likely to turn into the next subprime crisis," it said in a January report. The student loan market is one-tenth the size of the residential mortgage market. And more than 90 percent of student loans are federally guaranteed.
But the rapid growth of student debt -- mostly from federally subsidized loans -- has alarmed some in the financial world and looms as the biggest long-term economic problem facing many college graduates and their families today. [The Washington Post, 3/10/12]
Fox Business: "Student Loan Debt: Next Big Economic Shock." From a Feb 13 FoxBusiness.com article titled "Student Loan Debt: Next Big Economic Shock":
According to an analysis released last month by credit report provider FICO, consumers owe $750 billion in student loan debt -- more than what Americans owe on their credit cards.(1) Here's more bad news: 67% of lenders now expect student loan delinquencies to increase- a 19% jump in just three months.
In a January press release, FICO's chief analytics officer Dr. Andrew Jennings wrote: "Evidence is mounting that student loans could be the next trouble spot... A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults." [FoxBusiness.com, 2/13/12]
Wall Street Journal: Student Loan Debt Delays Critical Purchases, Marriage, Children. An April 17 Wall Street Journal article titled "To Pay Off Loans, Grads Put Off Marriage, Children" outlined the potential consequences of outstanding student debt on consumer behavior, including delays in buying a car or a home, as well as postponement of marriage and childbirth. From the article:
Potential consequences of taking out too many student loans
--Delays in buying a car or purchasing a home
--Postponement of marriage and childbirth for financial reasons
--Parents feel pressure to take out loans or otherwise help with payments
--Risk for parents who co-sign loans of losing homes, cars and other assets
--Little ability to discharge student loans in bankruptcy
--Inability to get credit cards or home or car loans
--Inability to rent a home because of high debt-to-income ratio
--Being forced to deal with private collection agencies in the event of default
--Having liens placed on bank accounts or property in a default*
--Facing collection fees of 25% of amount owed in a default
--No statute of limitations on collection efforts
--Having wages garnisheed
--Possible loss of state-issued professional licenses
--Reduction of Social Security payments**
--Seizure of tax refund** [The Wall Street Journal, 4/17/12]
Pew Survey: Student Debt Affects Home Purchasing. From a May 15, 2011 Pew Research Center report titled "Is College Worth It?":
The Burdens of Student Debt. Among all survey respondents who took out college loans and are no longer in school, about half (48%) say that paying back the loan has made it harder to make ends meet; 25% say it has made it harder to buy a home; 24% say it has had an impact on the kind of career they are pursuing; and 7% say it has delayed their getting married or starting a family.
The report included the following chart:
[Pew Research Center, 5/15/11]