Student Loan Crisis Is The One Obama Created

April 16, 2015

The Real Student Loan Crisis Is The One Obama Created

INVESTOR'S BUSINESS DAILY

 View Enlarged Image

Irresponsibility: A new report finds that 27.3% of student loans are delinquent. Why does this matter? Because thanks to President Obama, about $1 trillion dollars of student loan debt is owed to the federal government.
Obama keeps trying to portray the student loan crisis as a problem suffered by students burdened by a mountain of debt when they graduate, and who are unable to make enough money to pay it back.
But that's not the real crisis.
First, average student loan debt is only a little over $20,000. A student who gave up his $5-a-day Starbucks habit could pay off the principal in about a decade.
Second, despite the endless hue and cry about rising tuitions, the amount students actually pay to go to college — net of grants, aid, discounts, and what not — has barely budged, according to the College Board.
The problem isn't even that, at nearly $1.2 trillion, the total amount of student loan debt now exceeds that of auto loans or credit card debt.
The real crisis is one Obama himself manufactured since taking office.
In 2010, Obama eliminated the federal guaranteed loan program, which let private lenders offer student loans at low interest rates. Now, the Department of Education is the only place to go for such loans.
Obama sold this government takeover as a way to save money — why bear the costs of guaranteeing private loans, he said, when the government could cut out the middleman and lend the money itself?
The cost savings didn't happen. In fact, the Congressional Budget Office just increased its 10-year forecast for the loan program's costs by $27 billion, or 30%.
What did happen was an explosive growth in the amount of federal student loan debt. President Clinton phased in direct federal lending in 1993 as an option, but over the next 15 years the amount of loans was fairly stable. The result of Obama's action is striking. In each of the past six years, federal direct student loan debt has climbed by more than $100 billion. (See chart.)
And since Obama keeps making it easier and easier to avoid repaying those loans, it's a problem that taxpayers will eventually have to shoulder.
Through words and actions, Obama has encouraged irresponsibility on the part of student borrowers. He constantly talks as if student debt were an unfair burden they unknowingly had foisted upon them.
At the same time, he's made it easier and easier to avoid paying back student loans in full. Earlier this year, for example, Obama expanded eligibility for his "pay as you earn" program, which limits loan payments to 10% of income, with any debt left after 20 years forgiven.
Students got the message. The St. Louis Fed reports that 27.3% of student loans in repayment are at least a month behind in payments. That's a far higher delinquency rate than any other kind of debt, and it's significantly higher than the delinquency rate 10 years ago.
"This overall level of delinquency is very concerning," concluded authors Juan Sanchez and Lijin Zhu.
A 2013 Consumer Financial Protection Board report found that less than half of this federal loan money was actually being paid. About 30% was held by borrowers still in school or in a grace period, another chunk in deferment or forbearance, and almost 14% was in default.
No wonder Obama keeps trying to distract the public by focusing everyone's attention on student sob stories.