At the Washington Wizards-Brooklyn Nets game Saturday night, a Net player, in pursuit of a loose ball, careened into a waitress on the sidelines who was carrying a tray full of beers. The clip of the sudsy disaster went viral, and curious minds wanted to know more about the drenched victim. As it turns out, she is a Hill staffer moonlighting as a server at the Verizon Center because her student loan payments are so high. Out of sympathy, A GoFundMe account (similar to the crowdfunding site Kickstarter) intending to pay down her debt was even set up for her. For many indebted student loan borrowers, working a second job (or, alternatively, lucking into a windfall pile of crowdfunded money) seems to be the only way to make meaningful progress against stifling debt.
Good thing for the indebted that the Obama administration seems to be taking student loan repayment less seriously than ever. Written into the President’s 2016 budget is a very creative way of hiding what amounts to $22 billion dollars of taxpayer losses in the student loan program. How did this happen?
Recall that in 2010, Obama signed into law a bill that intended to ease the burden of debtors. The government may now only take 10% of a borrower’s income as payment, and loans are forgiven after 20 years. The preliminary result? A huge shortfall in repayments. Jordan Weissman at Slate, quoting an administration official, writes that 9 billion of the shortfall will come from Pay As You Go Losses, and another 15 billion from promoting the program. With so many accounting tricks (too complicated to rehash here) embedded in the budgetary process, it’s hard to know whether this will be a one-time episode or the beginning of a new trend in fiscal mismanagement.
A few takeaways from this: First, this new deficit doesn’t even strike me, or most observers, as all that dramatic. The government has nearly $750 billion dollars on its books in student loans, and as a percentage of debt being repaid, this isn’t all that much. It is this kind of incremental insolvency in the federal budget that has led the nation to being the most broke it has ever been. It should be more worrisome, but it isn’t.
Secondly, the President is being timid on an idea he has already proposed in healthcare: tying more dollars to outcomes. In the Vox interview with Obama that ran this week, the President suggested that the fee-for-service model of Medicare delivery was ripe for reform: “For example, what do we do to make sure that instead of paying a doctor in a hospital for just providing a service, let’s make sure that they’re being rewarded for a good outcome?” Would the President consider adopting a similar philosophy toward government money for college? Aren’t taxpayers entitled to a sense of confidence that their dollars are helping educate students?
Lastly, this cloak and dagger move suggests that the President is out of meaningful ideas on how to confront student loan debt. A few weeks ago the President emphasized in his State of the Union address his plans for helping middle class families. One of the centerpieces of his agenda was a plan to offer “free community college,” a proposal that would be paid for partly by taxing college savings plans (known as 529 plans for their tax designation). Ostensibly, he wants to educate students without indebting them, a good impulse. But his tax-and-spend philosophy on how to do it went down in flames after nearly everyone who reviewed the proposal complained. The country should show similar concern about this new deficit. In the end, we the people will be paying for this too.