The massive student loan debt 'boosts the economy' says White House

The White House Coucil of Economic Advisors used to be an independent group of scholars and economists who were supposed to give the president non-partisan advice on economic issues.

But during the Obama presidency, the Council has become a slave to the political agenda of the White House. To that end, the learned men and women on the Council have issued a report that unsurprisingly claims that the massive student loan debt held by graduates is actually a good thing because it boosts the economy.

Student loan debt has nearly doubled under President Obama, from $664 billion to $1.3 trillion. So how does being buried under a mountain of debt help the economy?

It doesn't.

Washington Free Beacon:

“The main macroeconomic impact of student loans, particularly over the long run, is via the boost to output and productivity from a more educated workforce,” the report stated. “While it is still important to monitor in overall leverage, on net, student loan debt is still likely to be a boost to the economy over the longer run by increasing educational levels and workers skills.”

Additionally, the report said that students with loan debt are in a better position to buy homes or start businesses because they are associated with additional income.

“Higher education, even paid for by debt, raises the likelihood of owning a home because of its impact on future earnings,” the report said. “By age 26, households with student debt are more likely to buy a house than those that did not attend college.”

Mary Clare Reim, a research associate in education policy at the Heritage Foundation, refuted the White House’s claim. She said that just because students who attend college typically have higher earnings, it doesn’t mean that the current sticker price of education is necessarily worth the economic benefits down the line.

“The argument that student loans won’t harm the economy because it’s an investment in our future falls apart when you look at student loan default rates and factor in loan forgiveness and grants,” Reim said. “Around 14 percent of student loans are currently in default, half of recent graduates are unemployed or under employed, and loan forgiveness programs are only growing, leaving taxpayers on the hook. Not to mention that all students who receive Pell Grants don’t need to pay taxpayers back.”

Reim said students get a loan regardless of what the student is interested in studying, where they want to go, and what their work ethic is like. Federal lending programs don’t do any sort of economic analysis to determine future earnings potential as a condition of the loan, she said.

“I think it would be very tough to argue that a Bachelor of Arts in dance is actually worth $200,000, but that’s what we’re subsidizing,” Reim said. “The feds now control 93 percent of all student loans and as a result we are subsidizing students and degrees of questionable value, a phenomenon that would not occur in a free market.”

The report is supposed to buttress Obama's efforts to make student loans even easier to get. Just what the world needs; more dance majors and art history lovers.

There has been talk in Washington - even among some Republicans - of forgiving all or part of the student loan debt burden as a way to stimulate the economy. By putting more money in the hands of college graduates, more money will be spent on consumer products, the thinking goes.

It's a dubious thought process given what we've seen from other "stimulus" programs. Besides, no one has mentioned the moral hazard of such a course of action. And what of students today? Why should they try to repay the loans when in a few years, government will step in and forgive them?

The magical thinking from the economic advisors in the White House is instructive. It shows how far from reality the Obama administration is basing its policies on.