Blog: Making Sense of Obama’s Student Debt Relief Plan

By Kevin Kuzma, Online Editor

The president is trying to make some sense finally with higher education. He’s trying to make some sense, now, in general — with war, with jobs, and the economy — those issues most important to our nation — and to his presidency, too, of course.

Until now, we have seen nonsense in the higher education community under the current administration, mind you. President Obama set a goal for our nation to lead the world with the highest proportion of college graduates by the year 2020, then deliberately put plans in place that make that goal unreachable. Nevertheless, in late October 2011, Obama has finally begun trying to bring some hope to students saddled with debt and struggling to find work. The only trouble is that his plans do nothing to help students who are currently struggling, but only those who will find themselves in the same dilemma when they borrow money in 2012. And his new ideas don’t create jobs, either.

Yesterday, Obama announced that he’s striking out on his own – completely unchecked by Congress – with changes that will affect about 7 million of the federal student loan program’s 36 million borrowers. His initiative will allow students to:

1.    Consolidate loans from the Federal Family Education Loan Program and direct loans from the government. The savings is an interest rate reduced up to a half percentage point less than the previous rate.

2.    Benefit from the acceleration of the implementation of an income-based repayment (IBR) program. Obama is pushing for a measure passed by Congress that reduces the maximum required payment on student loans from 15 percent of discretionary income to annually to 10 percent. He wants the change to be implemented faster, not in 2014 but 2012. Any remaining federal loan debt would be forgiven after 20 years of repayment, instead of the current 25 years.

President Obama is reportedly “fed up” with Congress’ inaction in bringing a jobs bill to the table that would help create new opportunities for recent college graduates. So instead of treating the cause with a plan that would impact student borrowers at all types of institutions, instead he has introduced measures to treat the effects. Rather than proposing a solution for eliminating debt to begin with, we’ve instead been presented with a forgiveness program.

Actually, we may need to be more forgiving. Under the president’s new plan, students might be tempted to borrow more and pay back even less. What’s to stop them from taking out, say, twice their original loan amounts and choosing to attend a more esteemed – and pricier – institution (assuming they have the academic credentials and manage to be accepted)? If a student isn’t going to be held to paying back the full amount, why not take on a larger debt load and get more for (not) their money?

Politically, the president’s plans might sway younger voters to support him. Who’s not up for playing less on what they owe? Or maybe Obama’s move is a response to the notion that he has do to something – anything – to fight the “do-nothing” label that’s been slapped on his back. But his actions have only created a “do-more” reaction from the career education sector.

The Coalition for Educational Success was first to issue a response to the White House’s announcement. Calling his actions a positive step forward, Managing Director Penny Lee made the natural connection between the president’s initiative and the “gainful employment” rule: “It is our hope that the U.S. Department of Education will eliminate any conflicting provisions of its recent gainful employment regulation imposing a limitation on the total number of loans in income-based repayment (IBR) programs that count as successfully in repayment. If unchanged, this provision will limit the important positive impact of the President’s new program for students.”

The Association for Private Sector Colleges and Universities (APSCU) followed with its response. APSCU also expressed concern that the change could make it more difficult for some of its institutions to comply with gainful employment regulations. But in the final paragraphs, the organization’s response suggests a focus on the solutions to excessive student debt, namely continuing to educate students about responsible borrowing and budgeting.

In other words, higher education needs a better solution to fix the issue at hand, like educating students and their families about the loan burdens they are taking on and the consequences of not paying their loans back. We have already bailed out struggling industries by dumping billions of dollars on them, to no avail. How about insisting on a jobs plan that alleviates much of the financial situation here by providing a way for people to make money to pay back what they owe? A few million forgiven student loans don’t help us get past the problem.

I’m convinced that if Washington was presented the absolute perfect solution for fixing the issues in higher education (or with any other issue, really), that solution would be distorted by the time it was implemented by all the parties who feel they need to have a say, who are obligated politically to posture strongly for or against it to gain political points, and so on. Mr. Obama’s suggestions are not perfect. His ideas are merely a start. And the fact that this first step might not even be in the right direction – and people are still finding some enthusiasm about it – is a sad commentary on where we are in higher education now. We are playing politics and banker, not protecting our future.

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