The Sorry Stafford Panderfest
Hidy, all. I'm back. Had my head down, crashing away on the Cage-Busting book manuscript. We'll eventually see how that turned out. Meanwhile, I've been blown away by the quality of the guest-blogging, so a special thanks to Jonathan, Chapman, Robin, and Andrew.
Anyway, let's get back to it, shall we? I've been typically disheartened by the Obama-inspired, now-bipartisan panderfest that's broken out over Stafford loans. For those who've been otherwise occupied, here's a quick recap.
Five years ago, in a piece of cheap political theater, Democrats in Congress wrote an additional sweetener for federally subsidized Stafford loans into the College Cost Reduction and Access Act. Beyond offering college loans at a guaranteed rate of 6.8%, Congress temporarily dropped the undergraduate rate as low as 3.4%. The logic for the fixed 6.8% in the first place was that student advocates were bummed out that interest rates fluctuate and wanted the feds to offer certainty (with the understanding that taxpayers would do well when market rates were low, and that that would hopefully buffer the Treasury against times when market rates were higher). The Bush administration, which never worried about spending a couple billion more bucks, cheerfully went along for the ride.
Now, the temporary 3.4% is set to naturally expire, with undergraduate Stafford loans reverting to the standard 6.8% rate. The impact? Not much. U.S. PIRG, the big "student advocacy" lobbying outfit, calculates the change would cost the average new borrower $2,800 over a 10-year repayment term. That's about $25 a month. Former CBO Director Douglas Holtz-Eakin has pegged the impact at $7 a month.
Meanwhile, the hit to the federal debt is projected at $30 billion over five years.
How is Washington dealing with asking new college borrowers to forego their extra subsidy of thirty to eighty cents a day? Not impressively. The same President Obama who once pledged that we were done "kicking the can" on tough decisions is pandering for the youth vote (on Jimmy Fallon, no less) by insisting it's a national imperative to extend the largesse. In a discouraging development, the same Mitt Romney who insists we have to slash spending and put the brakes on Obama's "government-centered society" quickly caved and joined Obama's call to extend the break.
In fact, the President has blatantly misrepresented who will benefit and how much the reset matters. He's been joined by members of Congress who know better (or damn well should). Obama has suggested there will be big savings for recent grads struggling in today's job market, and that his pandering is actually a response to a temporary, immediate crisis. In truth, the extended subsidy only applies to loans initiated in 2012-13--in other words, for students who won't be graduating for years and years.
And Congress, which is very good at agreeing on ways to give away freebies to the American public, is now fully on board. House Speaker John Boehner's office has declared, "Republicans and Democrats on both sides of the aisle and both sides of the Capitol have long agreed this is a problem that must be addressed." Boehner has said, "What Washington shouldn't be doing is exploiting the challenges that young Americans face for political gain." Gack. R's and D's, all of whom claim to realize that the feds can't keep spending a trillion a year more than we collect, are in a frenzied competition to score points off this bit of shameless pandering. (Boehner's release, which followed Romney's decision to match Obama pander for pander, was funny because it required an embarrassing pivot by the House Republicans. Just two days earlier, Boehner's office had admirably argued, "President Obama has said many times, 'We can't just keep subsidizing skyrocketing tuition; we'll run out of money.' Unfortunately, that's all the president's plan does." But I'm sure this will be only the first of many times that House Republicans abandon principle to accommodate the Romney campaign.)
1] The Stafford is a middle class entitlement. We're not talking about Pell grants for poor students. We're talking about whether students can get an even bigger subsidy on already-subsidized loans. And yet it's tough to find a single leader willing to say, "Enough, we can't keep ladling out dollars we don't have."
2] Everyone on Capitol Hill is busy offering an offset to "pay" for the extension. Newsflash: given that we're borrowing a trillion bucks this year, none of this is paid for. All of those potential cuts (or tax increases) are already needed just to start trimming the existing debt. We need all those cuts and revenue boosts, and to let the 3.4% sweetener expire.
3] The President has insisted that the subsidy is critical because of the tough job market. But the debate only affects loan costs for people starting college in 2012-13, which means they're mostly relevant for grads entering the workforce in 2017, or later. Is the President trying to tell us that he expects the job market to still be brutal in 2017?
4] Some of us warned in 2007 that the same "student advocates" pushing for the bill would later complain that loan burdens were too big, rates too high, more breaks were needed, and temporary goodies needed to be extended. Shockingly, this has come to pass. Turns out that interest groups never think they've gotten enough. Who'd of thunk it?
5] Finally, we really need to stop suggesting that it's okay to renege on obligations when we decide we no longer like the terms of contracts we voluntarily signed. It's been a meme the last few years, especially with Occupy Wall Street, and it makes it really hard to teach students to honor their obligations.