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  • The Rest of the Story on Student Loans

    President Obama is busy crossing the country and appealing to young Americans on the issue of student loans. He’s warning them of the possibility of increased interest rates this summer, which are set to double. Of course, there’s much more to the story than the president lets on. Douglas Holtz-Eakin explains on National Review’s “The Corner”:

    [The interest rate increase] sounds serious. After all, there are 39 million Americans with student loans owing over a trillion dollars of debt, and interest rates doubling from 3.4 percent to 6.8 percent would be a huge hit at a time when households are already struggling.

    Serious, except that the president’s plan would apply only to those 23 million loans being borrowed directly from the federal government.

    Except that not all of those would benefit; it would apply only to the 9.5 million loans being borrowed through the so-called subsidized Stafford loans.

    Except the lower rate would apply only to new borrowers who apply this year

    Except that no payments are made until after graduation, so it would not help anyone for several years.

    Except that it would lower monthly payments by an average of only $7.

    None of this is to say that the federal government should be doing more to bail out students. It shouldn’t. The point though is that the president is turning the student loan problem into a political issue, and he’s hiding the fact that federal overreach into the industry is largely to blame for today’s problems. Heritage’s Lindsey Burke explains:

    The Obama Administration’s overreach into the student loan industry has been wide-sweeping. In what The Wall Street Journal deemed “that other government takeover,” a provision buried deep in Obamacare effectively nationalized the student loan industry by ending government subsidies to private lenders and putting the federal government in charge of originating and servicing federally backed student loans.

    The Obamacare provision came in addition to the Administration’s decision in 2011—made through executive order—to forgive student loan debt after 20 years. And it comes in addition to the Administration’s gainful employment regulations restricting access to student loans for students attending for-profit institutions.

    But the current debate’s origins are in separate legislation passed in 2007 whereby the federal government set interest rates on student loans artificially low, cutting the rates in half temporarily for four years. Now that the interest rates are set to increase, President Obama is pressing Congress to keep rates low.

    Burke says that part of the problem is that under the current system, virtually anyone is eligible for a student loan, regardless of credit history or repayment potential. And the taxpayers are on the hook for the costs.

    Here’s another fact to keep in mind. The cost of attending college has increased 439 percent since 1982 — even with federal involvement in student loans. Burke suggests that to drive down the cost of college, America should shift from debt-based to savings-based college financing, limiting access to federal student loans to four years of undergraduate work, and allowing the free market to work (as online learning grows and expands) to reduce college costs.

    Posted in Education, Featured [slideshow_deploy]

    12 Responses to The Rest of the Story on Student Loans

    1. Student loans more than quadrupled from 2000 to 2011…..Why?

      My take: tuition increases based on credit available.

      Consequence: Massive default in the near future.

    2. CforUS says:

      A simple fact of life is that NOT EVERYONE SHOULD GO TO COLLEGE. There are some students that should just move right into the workforce after high school. No amount of advanced education will improve their prospects. The other issue that doesn't receive enough attention is we are shooting ourselves in the foot by not making the trades a priority. There are literally thousands upon thousands of 6 figure jobs available for machinists (for example) right now. We no longer teach entry level skills in the trades in high school like we did in the past. Liability became so high public schools closed their shop classes. We sell our kids on becoming "computer scientists" when some would excell as machinists, carpenters and electricians instead. Without skills in trades like these we have fewer "tinkerers" that go home after work and work in their basements developing the next holy crap inventions. Fewer university students means fewer loans and much less debt as young adults.

      • Kahr50 says:

        I could not have said it better.

        Ever hear the phrase "Too many Chiefs and not enough Indians?" Well the Chiefs are out of work and every graduating Chief is struggling to find a job to pay off the loan.

        Who decided that everyone WILL go to college and why? For those who are wired to be leaders and business owners and the like – college may be great. For the majority of us, it might not be so useful.

        What is better – 4 years of college, $80,000 in debt and no job or 4 years of work experience and $80,000 in income? At what point do these equations cross and how does that affect each individual?

        That is what kids today need to decide.

    3. Carol, AZ says:

      Thank you for the details in this article.
      Maybe we can re-name this as another pathetic attempt to appeals to the student vote, by our, Liar-in-Chief.
      Another way to make us feel we owe homage to the helm as the KING tells colleges students his personal sob story about his student loans.
      He's taking over another aspect of our dependency to our govt . I'll call it Bo Jinglism
      No media will report it.
      Yes, allow the free markets to work.The banks our fat with cash .
      All college student can write on the loan application "college tuition fund /re-elect Obama campaign contribution.

    4. grams says:

      I agree. I've always wished there were more continuing education programs available that lead to certification in many fields. There are many students who are not capable mentally of attaining a college degree, but who would possibly do very well in a porgram teaching them a trade. There are also many students who may have the capability of getting that college degree, but would prefer to pursue other avenues, such as a trade. But many businesses now require a degree, or at the least, certification in their field. I think there should be many more "certification" programs available to students who would like to go in that direction. I personally appreciate a truly qualified technician to "fix" electrical, plumbing etc. problems that arise, or talented carpenters, furniture builders, etc.

    5. Kahr50 says:

      "Here’s another fact to keep in mind. The cost of attending college has increased 439 percent since 1982 — even with federal involvement in student loans"

      This should be rewriten to state – becasue federal involvement in student loans.

      Jult like forcing banks to make home loans to people who could not afford to pay them back caused housing to artifically increase in value, the universities know that they can charge whatever they want bacause the federal governemnt says that even if the studens do not pay the loan, the univeriity is paid and teh fed eats the default – ie taxpayers foot hte bill. Duh – guaranteed payment by the government means that they can charge whatever they want.

      Instead, let free markets work and no only will loans be less costly, the universities will have to face up to the fact that they have to compete for students – a population that is shrinking. As student 'demand' goes down against university surplus supply the costs must go down and competition for students will be the norm.

      Get tax payer money out of the system.

    6. bushkno says:

      To correct the situation: Close the Federal Dept. of Education Let the states keep the money and decide their own programs. Let the free market work! They will soon decide that as stated not everyone should go to college…likely trade school training will return…competition will force the for profit schools to become better and colleges to lossen up the huge amounts of money they sit upon and compettion will force them also to bring down costs. There are already great colleges out there that do a marvelous job for far less cost..think (Liberty U., college of the Ozarks, Piedmount college, Hillsdale college etc…) One thing most of them have in common **they don't take the Federal dollar consequently they are free to do a much better job of education rather than ideology training…. so say I Larry Uloth

    7. Bobbie says:

      Colleges don't teach facts. It's all based on opinions and the majority of what students are paying for is learned through life's experiences one has the duty to take sole control of! but they're losing control because now it's being taught! GET OUT OF COLLEGE it isn't worth the trained high paid people who are handed degrees to call themselves professors when in fact beneath the standard of an average IQ.

      I know a government worker who is highly paid in the government make work of "job training" who claims to have a 127 IQ?? That's genius isn't it? How low have the standards dropped? Then she claims to have ADHD!! How is an IQ figured in a person with ADHD? She's labeled with ADHD and wears it well. That way she doesn't have to be accountable when the time comes. No qualifications when you work in government. No accountability to a government title. Just a fat paycheck with a sad, poor attitude and lots of excuses.

      We have to demand much higher work ethic at an accurate lower pay!

      More work on us than an ounce of benefit. She selfishly added a beautiful addition on to her rambler and said it was going to be used as a nursing home? Something in the future government deduction plans? It certainly wasn't built for this purpose as it has stairs to go in the house and a full flight of stairs in the addition. I can't deny it's beautiful but then she like her boss isn't worth their pay and irresponsibly spent beyond her means looking for everyone's pity!

      It's become the devil's drive. The democratic devil's drive.

    8. Concerned Retiree says:

      What is the source of the money that would be used for the new subsidized Stafford loans and what entity actually receives the 3.4% government subsidy. If the loan funds come from our taxes, there should be one or more line items in DoEd "budget" identifying those funds. And if the loan funds are in the "budget", students are paying interest and principle to the US Government and when the principle and interest are paid back to the government doesn't this result in a profit based on the interest (less administrative costs) and thus how does the 3.4% interest paid by the government (to some entity) result in $6B deficit (over the 10 year pay back period of the loan).
      .

      • Concerned Retiree says:

        Subsidized Stafford Student Loan Funds come from the US Treasury, In the slight of hand associated with funding in THE HEALTH CARE & EDUCATION AFFORDABILITY
        RECONCILIATION ACT of 2010, the CBO assumed, as directed by congress, the interest of 6.8% as income to the government.

        If the interest rate is 3.4% instead of 6.8%, the government income is less by approximately $6.7B over 10 years.
        Hence the claim that reducing the rate to 3.4% increases the debt by $6.7B over 10 years.
        Absolutely, the Government should get out of the student loan business.
        The deficit is increased by loaning money the government doesn't have, then increased again when interest income from the money we don't have is not as much as assumed.

    9. Blue-collar survivor says:

      The issue at hand is that without the piece of paper that universities offer, the chance of making at least lower middle class income for a family of four is impossible. The system has changed that advancement through corporations are not happening anymore. The rule used to be 80/20, find 80 percent your promotions in-house, and 20 from the outside. Now corporate is in a different state, run by an HR department that sets a guideline that always requires a 4 year degree, eliminating the incentive for hardworking entry level employees. I agree that technicians and skilled-trades made this country great, but somewhere along the way they fell out of favor. I guess managers didn't like seeing their subordinates earning close or more than what they made.

      • Bobbie says:

        the mind set of everyone "needs a degree to work" was put in place by government public education that within the control of government deliberately and at a worthless but costly expense, dummy down what was once basic standards of education. If you have kids, you know EXACTLY what I mean!

        A corporation I worked for sent me to school at their cost without federal impositions. Private businesses can't afford that anymore because of government's unconstitutional intrusions putting costs of those intrusions on businesses who would otherwise not be forced to afford. Subordinates are subordinates what do you mean "earning close or more than what they made?"

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