Obama’s Student Loan Proposal Tackles A Symptom, Not the Disease

Identity politics: At this point it’s a tried and true, albeit depressing, strategy in which the White House’s number crunchers figure out how to cobble together a constituency capable of winning and then set about either giving speeches or passing executive orders meant to target them.

Currently in the White House’s crosshairs is young adults, a group who carried Obama into the presidency in 2008 and 2012, but has the pesky reputation of not showing up in midterms. The president’s advisers clearly hope to energize that latent group by talking about an issue that strikes close to home, or more accurately, their pocket books: Student loan reform. The LA Times reports:

President Obama on Monday signed an executive order that lets millions of college graduates cap their student loan payments at 10% of their income, a move he says will help “open the doors of opportunity for all.”

By amending student loan regulations to put the cap in place, Obama is making use of his executive powers to help alleviate the burden for young Americans increasingly saddled with student loans.

To be clear, young adults are facing tremendous problems. They have high unemployment rates and higher underemployment rates, their wages are low, and their student debts payments are enormous. But what President Obama’s proposed solution fails to grapple with is that high student loan debts are merely a symptom of the disease of soaring college costs. Young adults only borrow more because college costs more.

“Since 1978, the price of tuition at US colleges has increased over 900 percent, 650 points above inflation,” writes Malcolm Harris for N+1. “To put that number in perspective, housing prices, the bubble that nearly burst the US economy, then the global one, increased only fifty points above the Consumer Price Index during those years.”

The president’s plan doesn’t address the issue of college affordability; indeed it may make it worse. The reason is simple – if more students can cap their loan payments as a percentage of their income and then have it forgiven after 20 years then the total cost of college is essentially capped from perspective of a student.

In other words, there is no price pressure. It could potentially cost a student the exact same to take out $25,000 worth of loans to attend an in-state institution as it would to take out $100,000 worth to go to a private, out-of-state college. While that sounds promising to the students, you can bet that college administrators also have dollar signs flashing in front of their eyes. If students no longer have any reason to be price conscious because the amount they’ll have to pay is effectively capped, then colleges no longer have any incentive to keep tuition down. Indeed their incentive is to invest in every bell and whistle they can think of to attract students regardless of its impact on learning. They can rest soundly knowing that students aren’t footing the bill, it’s being borne by the federal government’s generosity.

Sadly, even if we accept that the idea that income caps and forgiveness deadlines are positive ideas, the president’s plan isn’t as substantial as he posits. Jennifer Liberto reports for CNN:

However, the number of students that will benefit is like a drop in the bucket.

“We’re probably not going to have many new borrowers saying: I’m going to qualify for this,” said Mark Kantrowitz, publisher of Edvisors Network, an educational resource for students.

What the President announced wasn’t a new program; it’s an expansion of cheaper terms of an existing loan repayment program. And it won’t become available until December 2015.

. . . Also, the programs target a narrow base. They are designed to only help the poorest borrowers living on the edge. “No more than 10% of student loan borrowers qualify for the programs,” Kantrowitz said.

The bottom line is that President Obama is offering a very narrow solution to the wrong problem – his plan certainly makes student debt more affordable, but the real goal should be to make college more affordable. Unfortunately, good policy is often lost in the attempt to politically pander under the vagaries of identity politics.