President Obama announced today an executive order that will make the student loan program a worse deal for taxpayers. Though the federal government already allows some students to cap their loan repayments at 10 percent of their monthly incomes, the President hopes to expand the program. Students who borrowed before October 2007 or who haven’t borrowed since October 2011 will now be allowed to do so. In other words, more students will be able to repay less of their taxpayer-subsidized loans.
The President has chosen to ease student debt by shifting the costs to the taxpayers who fund it. Though this order might strike him as a good political move–especially in advance of the upcoming midterm elections–it won’t help students in the long run. It will encourage students to assume more debt, as it signals that the federal government is willing to bail out indebted students. The more the federal government cushions student borrowers while maintaining its generous loan program, the higher student debt loads will grow. The risk of delinquency and default will increase accordingly.
A real solution to growing student debt requires substantive fixes to the student loan program, not expensive gimmicks. It’s a sorry fact that Congress, and now the President, have chosen the latter.