Obama Hides $22 Billion in Student Debt

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.

David Wilezol

David Wilezol is the co-author of "Is College Worth It?" with former U.S. Secretary of Education William J. Bennett.

6 thoughts on “Obama Hides $22 Billion in Student Debt

  1. “I’m a conservative, but one thing I will not countenance is the removal of bankruptcy protection, TILA, refinancing rights, etc. etc. etc. etc. , merely because the federal government originated the loan.”

    Student loans have never[1] been dischargeable in bankruptcy because there simply would be no reason (other than morality) for a student to max out their borrowing, then default within the first year of college, get their debt discharged early while they have no credit anyway, and then work their way back. By the time they’ve been out of school 5 or 7 years the bankruptcy is gone and you still have your degree.

    I do agree however that the lender should take the risk but if you’re going to do that you’re going to f*k the very people that student loans were intended to help, the lower middle class student.

    I think if you’re going to have student loans (and right now the entire system is built on htem, to make them disappear is simply politically impossible, and if it were possible would cause sufficient disruption as to be a bad idea on it’s own) would simply be to cap the amount one can borrow based on some fraction/multiple of the income that a person in that field normally gets. For no good reason let’s pick “One Years Salary”. This means your average sociology major gets to have a maximum of 35 or 40k in loans, while an engineer might get 60 or 90k.

    If you can’t pay that off, then you don’t deserve a degree anyway.

    Oh, and I paid off 30k in student loan debt (graduated in 1995) in less than 10 years, and I had a Bachelor of Fine Art degree. (Yes, an Art major).

    [1] For values of “never” that mean “back to the 80s”.

  2. “15 billion from promoting the program”

    Excuse me?

    Is this for advertising?

    I guess we know how Vox plans to make money.

    15 billion for “promotion” sounds like a slush fund for media companies.

    How about a printed insert in each monthly statement.

  3. Obama’s plans to tax 529’s is just classic- the Left drools over any untaxed savings plans. When some study showed that most 529 savers are better off (strange- successful people plan ahead? ) they started rubbing their palms with glee.

  4. Hi!

    I like Minding the Campus and you. [ End of happy talk.]

    Bottom line: The Feds own a whole bunch of bad educational loans – “bad” meaning, the loans cannot and will not be paid in full, either in the short or long term. If one is (de facto) in default today, there’s very little reason to believe he will pay the government back in full principal and interest over a 20-25 year term….especially considering the accumulation of interest at rate[s] greatly exceeding the risk-free rate [which is what should be charged since we have no bankruptcy rights].

    The longest re-organization term a bankruptcy court will for a debtor ‘coming to Jesus’ is 5 years. Kicking the can of sub-sub-subprime educational loans out 20-25 years is a farce and will not stop the DOE from “shortfall” losses in the billions…TODAY or TOMORROW or 20-25 YEARS FROM NOW.

    So, what the heck is the Republican response? Doesn’t a free market require The Lender to bear the risk The Lender took when The Lender originated the loan? Isn’t that capitalism? Where the hell was my free market???

    I’m a conservative, but one thing I will not countenance is the removal of bankruptcy protection, TILA, refinancing rights, etc. etc. etc. etc. , merely because the federal government originated the loan.

    Are we Venezuela? If the government chooses to “invest” should she be treated more favorably under the law than a private entity??? Should the government invest and turn a profit??

    Let us be honest: “conservative” politicians championed the present quasi-socialist system and they were wrong to do so. The present system resulted in a benefit to posh school administrations and a NOMINAL benefit to the DOE, which in reality, will be huge a loss, today and tomorrow.

    Whatever is done about the “front-end” of federal educational lending will not happen unless something is first done about the ‘back-end’ of federal educational lending.

    It’s time that the [explicative delete] Lender took a loss. That’s the root of all change; it is The Policy implicated by conservative principles, and ultimately, it’s unavoidable because that which cannot be repaid will not be repaid.

    At this point, there’s too damn many debtors to continue the lie that subsidizing a product doesn’t drive up its price and screw the consumer, and too many debtors to ignore the need to restore bankruptcy (aka sanity) to the loans.

    Of course, politicians can continue to deny the price inflation caused by federal lending, the regulatory capture of “accrediting agencies” and the DOE’s slight of hand to hide losses, but right now there are 40 MILLION federal debtors…and some additional number of purely private debtors, and we’re a righteously, pissed-off voting majority.

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