WASHINGTON, D.C. | October 28, 2011
This week, the Obama administration heralded their latest initiative to “fix” the American economy. This time, it is a plan that unilaterally alters federal policies governing federal student loans. Amazingly, the president has pledged
this “won’t cost taxpayers a dime.” In fact, White House officials have upped the ante
, claiming that this latest government plan will actually end up saving taxpayers in the long run.
After watching the president and his big-spending allies in Congress rack up more than $4 trillion in new debt since 2009, the American people may be hesitant to buy into another scheme that purportedly spends money to save money.
You may remember that in 2010, Democrats in Washington made the U.S. Department of Education the sole source of all federal student loans. According to former Congressional Budget Office Director Doug Holtz-Eakin
, “The Secretary of Education is now one of the top financial executives in the U.S., and Congress spent nearly all of the over-estimated ‘savings’ on the President’s health care reform and unaffordable education entitlements and will add more than a trillion dollars of risky loans to the national balance sheet by 2017.” And now the president is proposing to expand that risk even further.
A key pillar of the plan is to “forgive” a borrower’s outstanding loan balance after 20 years of repayments capped at just 10% of the borrower’s monthly discretionary income. In National Review
, Annie Hsiao questioned the sustainability of the president’s student loan plan, stating it is “making taxpayers absorb the financial risks of federal direct lending and leading the country over a cliff into future funding shortfalls.” While it is difficult to measure what the true cost of the president’s plan will be to taxpayers over time, Fox News
offered an interesting hypothetical scenario earlier this week:
If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.
Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.
In other words, taxpayers will ultimately pick up the check for a plan that may actually create a disincentive for students to fully repay their college loans. When asked to explain why students would be willing to repay their loans if they knew of the loan forgiveness provision, Education Secretary Arne Duncan offered
a less than compelling answer: “People want to do the right thing.”
Amid high unemployment, ongoing economic turmoil, and unsustainable federal deficits, common sense dictates we should avoid controversial schemes that promise something for nothing. That’s why House Education and the Workforce Committee Chairman John Kline (R-MN) yesterday sent a letter
to Secretary Duncan demanding more information on the true costs behind the administration’s proposal – along with a full analysis of the taxpayer protections he intends to implement.
American taxpayers deserve to know if they are being saddled with the costs of yet another government program that we’ve already learned
will do little to help the nation’s students.
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