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Thursdays with John Hayward: Refinancing Student Loans


President Obama’s exciting “soft dictatorship” re-election strategy, in which he looks for ways he can get around Congress to buy votes with expensive bailout proposals, moved from underwater home mortgages to deep-sea student loans on Wednesday.

“Refinancing” is the hot catch phrase of the day, and Obama’s got some rather dramatic refinancing in mind for those student loans.  Besides lowering the interest rates, and allowing students to consolidate private and government loans, he wants to accelerate the implementation of a program to cap student loan repayments at 10 percent of the debtor’s income - after a generous $10,000 deduction for “poverty-level” basic necessities - for a maximum of 20 years.  Congress intended these changes to go into effect in 2014, but that obviously won’t do anything to help the Obama 2012 re-election campaign, and student voters are a constituency Obama is very happy to pay off using other people’s money.

Various means tests and eligibility requirements mean that relatively few students will qualify for the Obama program, and the actual net benefit will be less than $10 per month for most of them.  Obama commiserated with a friendly student crowd in Denver as he announced his plan: “Living with that kind of debt means making some pretty tough choices. … It could mean putting off buying a house. It may mean you wait longest to start a family.”  It’s hard to see how an extra ten bucks a month is going to help them start their families sooner.

Puny benefits for a large pool of borrowers, extended over a long period of time, add up to big costs for the rest of us, but Obama claims this magical erasure of student debt “won’t cost taxpayers a dime.”  In his eagerness to buy some student votes, he’s perpetuating the dangerous “Occupy Wall Street” image of loans as unfair traps that benevolent politicians should “rescue” hapless citizens from.  He’s also distracting students and their parents from the question they should be asking: Why the hell is college so expensive?  Why are people racking up gigantic loan balances for educations that have become an unreliable middle-class inoculation against menial labor and unemployment?


— John Hayward

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