Politics
In this May 9, 2011 photo, graduates of the School of Theology celebrate during Emory University In this May 9, 2011 photo, graduates of the School of Theology celebrate during Emory University's commencement ceremony, in Atlanta. For some graduates, the next test is figuring out how to repay student loans. (David Goldman/AP File)  

Class war: Obama offers cash-for-votes student loan policy

Photo of Neil Munro
Neil Munro
White House Correspondent

President Barack Obama’s new student loan policy will force working class Americans to pay the ballooning college costs of middle class Americans, and will also hinder needed reform of the bloated education sector, say critics.

Obama is “shifting the burden of paying for college to all of those Americans who did not graduate from college — the waitresses, construction workers, mechanics — and that should infuriate the taxpayers who worked hard to pay off their loans, who decided to live a modest lifestyle to pay off their loans,” said Lindsey Burke, an analyst at the Heritage Foundation.

Obama’s policy is also widening the class division between working-class Americans and those with college credentials, said Matthew Denhart, a researcher at the Center for College Affordability and Productivity in Washington, D.C.

Whatever the real costs, the new subsidy could benefit Obama’s standing among the disenchanted voters in the coveted 20-something demographic. Almost 70 percent of that group voted for him overwhelmingly in 2008.

The new loan policy “will save you money, it will help more young people figure out how to attend college … you will be more comfortable and confident to buy a house … [and] that will give our economy a boost when it desperately needs it,” Obama told a cheering crowd of students at the University of Colorado’s Denver campus.

But, he added, “young guys, I need you involved, I need you active … I need you to get the word out.”

Colorado is a swing state, and his polls show him well below the 50 percent approval mark. (RELATED: Ron Paul says Obama’s student debt plan is possibly illegal)

On Tuesday, Obama’s 2012 campaign announced a new program to win back youth voters. The “Greater Together,” program is intended “to engage young Americans between the ages of 18 and 29.” It was introduced by a video that asks younger people “to get involved once again in the political process and to help him finish what they all started together.”

The next day, Oct. 26, Obama announced his new student loan regulations, which build on a 2010 law that forced banks to cede student loan work to the federal government. The law forced banks to lay off thousands of employees, and it allows students to walk away from taxpayers’ loans after 15 years or 25 years.

Obama’s policy caps monthly payments at 10 percent of graduate’s income after taxes. Additionally, graduates will be able to walk away from taxpayers’ loans after 10 years if they work in “public service.”

“Public service” jobs are limited to government jobs, plus some favored non-profits focused on “public interest” law, early education, health or libraries. Students working in for-profit companies will be able to discard their loans only after 20 years, according to the new policy.

But the colleges fees have to be paid somehow, even when repayments are stopped, said Burke. Sooner or later, this “will ultimately result in tax increases — in putting this on the backs of three-quarters of Americans who did not graduate from college.”

Working-class people will end up paying for middle-class graduates’ basket-weaving and women’s studies degrees, she said.

Moreover, billions of dollars in government subsidies and advocacy have gradually converted college degrees into markers of middle-class status, even when those degrees earn less money than vocational credentials, such as plumbing licenses, Denhart said. Employers can’t assess the economic value of non-technical degrees, he explained, so those degrees only allow “people to signal to employers and peers that ‘I’m qualified enough to have completed a college education.’”

Administration officials say the new financial benefits are free.

Roughly 1.6 million Americans with federal loans “could see their payments go down by hundreds [of dollars] per month … [and] it won’t cost taxpayers a dime,” Obama told the cheering students.

But there must be a cost, countered Denhart. “We don’t know the exact cost … it takes time to work it out.”

The monthly benefit for graduate depends on their income and whether they’re married and have children. The greatest benefit will go to those with the highest debt and the lowest income, for example, people with post-graduate degrees in social studies.

The new policy also allows roughly 6 million graduates to merge commercial ‘Federal Family Education Loans’ loans with government loans, and lower their interest rate by roughly a half-percent. Roughly 36 million graduates have outstanding loans, including $400 billion in FFEL debt.

The full cost of these benefits likely won’t be known for a decade, when graduates will begin to walk away from taxpayers’ loans, Denhart said. Costs incurred more than 10 years ahead aren’t accounted for in government budget plans.

In his Colorado speech, Obama acknowledged the rising costs of college. Those costs have tripled since 1982, and graduates owe almost $1 trillion to government and commercial lenders, Denhart continued. But Obama offered no proposal to curbs costs, or improve quality in the education industry, which is an important part of the Democratic Party’s political base.

Federal loans and additional grants allow universities to charge high fees, Denhart said, or even to further raise their fees.

Obama’s policies, said Burke, are keeping costs too high, and effectively preserving the “education bubble” in the same fashion that government subsidies and unwise regulations created the real estate bubble during the 1990s and 2000s. The real estate bubble wrecked the economy as it burst in 2008 when mortgage debts became unmanageable, and the education bubble will eventually burst when graduates can’t pay their loans, she concluded.

Republicans legislators oppose the taxpayer-paid bailout. “This plan will not create a single job, strengthen our economy, or promote fiscal responsibility,” said a statement from John Kline, chairman of the House committee on education. Instead, the plan will “encourage more borrowing across the board… more debt for students, more debt for taxpayers, and more red ink on the government’s books,” said the statement.

Obama’s unwillingness to deal with rising costs and the education bubble, said Denhart, is “unsurprising, but at the same time, incredibly disappointing … [because] what we’re seeing is an industry that refuses to reform its basic operating structure.”

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