Obama issues another executive order bypassing Congress
In a bid to give one of the Democrat's vital constituencies a lhand, President Obama will issue an executive order today that will cap student loan repayments at 10% of a borrower's monthly income.
President Barack Obama said in his weekly address Saturday that he would take action on student loan issues in the coming days, but gave no details. The executive order, first reported by the New York Times, will expand on a 2010 law that capped borrowers’ repayment but left a hole in eligibility for people with older loans. Those left out of that relief include people who borrowed before October 2007 or stopped borrowing by October 2011.
“This makes it simpler to have one set of terms,” said Jason Delisle, director of the New America Foundation’s Federal Education Budget Project. But he pointed out that all borrowers already have the option of basing loan repayments on their income.
Federal student loan debt reached more than $1 trillion last year, an amount that has some economists concerned is creating a chilling effect on spending, home-buying and other economic drivers.
“This is commencement season, a time for graduates and their families to celebrate one of the greatest achievements of a young person’s life,” Obama said Saturday. “But for many graduates, it also means feeling trapped by a whole lot of student loan debt.”
"Trapped" by student loan debt? President Obama is referring to the common practice by lenders of holding a gun to the head of students, forcing them to take on more debt than they are capable of repaying. Or didn't you know that?
The economic reasoning behind the maneuver is questionable, however, Delisle said. The president is making the case that “we need to help [student loan debtors] with debt so they can go into even more debt,” such as taking out a mortgage to buy a home. But student loans already helped these borrowers consume beyond their means, he said.
The executive order will be part of a White House event on student loans planned for Monday. The White House said the change will allow an additional 5 million borrowers with federal student loans to cap their monthly payments at just 10 percent of their income.
Obama’s executive order wouldn’t kick in until December 2015, however, the White House said, to give the Education Department time to propose and enact new regulations.
The Education Department also will renegotiate contracts with federal loan servicers so that they have incentive to keep borrowers from falling behind on payments or defaulting on their loans.
The proportion of borrowers defaulting on their federal student loans within three years of beginning to repay them has been rising for several years running: From fiscal year 2009 to 2010 it rose from 13.4 percent to nearly 15 percent.
With no discernible economic benefit, there's only one reason to make another end run around Congress to get this done; politics. Young people are a vital cog in the Democratic party coalition so making them happy - and willing to vote in November - trumps common sense and rational public policy.
The student loan debt crisis is so bad that some Democrats are talking about a bailout; debt forgiveness along with payments to lenders. I know it's gauche to point out, but back in the 1980's when expanding federal student loan programs was being discussed, many predicted the scenario that is playing out today. It's small comfort that so many were right, but it also should be a lesson in out of control federal spending