Obama Further Inflates Student Loan Bubble

By:  Bob Adelmann
06/19/2014
       
Obama Further Inflates Student Loan Bubble

The president's plan to make student loan borrowing easier will merely insure that more and more graduates will become debt slaves, assuming they can find work.

On June 9 President Obama announced new executive actions to make borrowing for college easier and less costly. Speaking to students via Tumblr, the president said:

A higher education is the single best investment that you can make in yourselves and your future, and we’ve got to make sure that investment pays off....

In America, higher education opens the doors of opportunity for all.

He dusted off the old shibboleths that a college degree will improve chances to get hired and will result in higher earnings as well:

The typical American with a bachelor’s degree or higher earns over $28,000 more per year than somebody with just a high school education — 28 grand a year.

And right now the unemployment rate for workers with a bachelor’s degree is about half of what it is for folks with just a high school education.

He ordered Secretary of Education Arne Duncan to set up a “Pay As You Earn” (PAYE) plan that caps interest payments on student loans at 10 percent of disposable income which he estimates will help another five million students to get those loans. He is pressuring Sallie Mae — the student loan originator which currently manages more than $180 billion in loans for over 10 million borrowers — to renegotiate agreements in order to make their loans “more flexible” and thus more attractive to more potential borrowers.

According to the White House fact sheet that accompanied his remarks, the president will continue to apply pressure on Congress to allow existing student loan debt to be refinanced at lower rates, and to cancel any student loan debt remaining after 20 years. This would put the ultimate cost of education onto the backs of taxpayers, but the president excluded any mention of that in his remarks.  

All this will do is to increase the demand for student loans which have already skyrocketed during the Obama administration by more than 500 percent. The U.S. Treasury carries most of those loans on its balance sheet as debts. At the beginning of Obama’s first term, that debt totaled $120 billion. At the end of May it exceeded $750 billion. The total student debt now exceeds $1.2 trillion owed by roughly 37 million students and graduates.

The average college graduate who can actually find work makes, according to Pew Research, less than two-thirds of what the president said the graduate would make: about $45,000 a year compared to $28,000 for those with just a high school diploma. But it’s even less than that once interest payments on student loans are factored in.

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