White House officials announced Tuesday that they would be redirecting projected savings from a 2010 federal takeover of student loans to provide new no-cost benefits to graduates mired in college debt.
The new plan is complex, and the immediate benefits to graduates are quite small, in part because it uses the president’s regulatory authority — not congressional authority — to create the benefit for future graduates.
However, the plan may well improve the president’s standing among the millions of 20-something graduates who are facing a dismal economy and mounting interest payments. In 2008, Obama won almost two-thirds of the 18-to-29 vote, but a majority of white voters in that age group now lean towards the GOP, according to a July poll from the Pew Research Center.
The new benefit is being packaged under the president’s “We Can’t Wait” slogan, which is being used to paint Congress as unwilling to help revive the economy. The economy remains stalled, and real unemployment has remained well above 10 percent long after the 2008 recession came to a formal end in 2009.
“The president has heard from not only the 39,000 people who signed the [MoveOn.org] petition, but also countless people who have talked to us all around the country,” said Melody Barnes, the White House chief domestic policy adviser. “We’re doing this to try to lift the burden off of them,” she said.
The MoveOn.org petition asks for taxpayers to cancel the loans taken out by graduates to attend colleges. (RELATED: Obama: It’s ‘not as trendy to be an Obama supporter’ today)
Several online sites showcase hundreds of students who can’t pay back their loans. For example, roughly one-third of the testimonials on a popular Occupy Wall Street site feature unemployed or underemployed students with large student debts, sometimes of more than $100,000. There are few testimonials from people with engineering degrees, and few from people who have in-demand working-class qualifications, such as vocational licenses to work as electricians or plumbers.
The Institute for College Access & Success estimates that 2009 graduates from non-profit colleges have an average debt of $24,000. Nationally, the size of the student debt is climbing past credit card debt and will reach $1 trillion this year, following decades of rising prices in the heavily regulated education sector.
“The cost of attending college has increased 439 percent since 1982 — faster than the rate of health care increases,” according to the Heritage Foundation.
The White House’s plan does nothing to reform colleges, to reduce the cost of college, to increase the workplace value or quality of college credentials, or to spur employment of graduates with less marketable degrees, such as Spanish, English, theater and anthropology.
The new plan offers no benefits to students who kept their loans low, or to people who did not go to college.
Under the new program, 1.6 million current students who have government loans — not private sector loans — can cap their annual payments at 10 percent of their income after taxes from 2012 onwards. The 2010 student loan law had set the cap at 15 percent, beginning in 2014.
This 10 percent cap is not available to current graduates.
The new plan also says government loans will be forgiven after 20 years, down from the 25 years set in a 2010 law. Also, people who work in occupations favored by the Democratic Party, dubbed, “public service occupations,” can have their debt lifted after 10 years, effectively giving them a benefit worth perhaps 50 percent of the student loan.
Also, roughly 6 million graduates will be able to consolidate two different types of federal loans into a new loan with slightly lower interest rates.
The plan also aids universities, because it offsets the cost of attending universities, without requiring any reduction in university fees. College employees, including professors, lecturers and administrators, are an influential slice of the Democratic Party’s base.
The administration accounts for the extra cost of the new benefit by reallocating predicted savings from the 2010 government takeover of the student loans business.
The takeover cut commission payments to banks, creating a paper savings that the White House initially declared would be spent on additional loans for students to attend universities and colleges.
“We’re stepping into a gap,” said Barnes “at no cost to the taxpayer, and creating a program that gives additional relief to students.”