How Obamacare blew up the student loan crisis

https://www.washingtonexaminer.com/opinion/how-obamacare-blew-up-the-student-loan-crisis

How Obamacare blew up the student loan crisis

July 2, 2019

Sen. Elizabeth Warren wants to cancel student loan debt for 95% of debtors. Fellow 2020 hopeful Sen. Bernie Sanders wants to cancel all of it. What they and every other statist and socialist eager to default on trillions owed to taxpayers forget that President Barack Obama nationalizing student loans brought us to this catastrophe in the first place.

Lost in the kerfuffle and fuming of the Affordable Care Act’s passage in 2010 was the Health Care and Education Reconciliation Act, signed into law just seven days after Obamacare. Half of the act consisted of small and otherwise innocuous amendments to the ill-fated Affordable Care Act, but the other half, Title II, radically overhauled the country’s student loan industry, replacing federally backed bank loans with direct government lending.

The private student loan industry was already dysfunctional and never truly private. The largest private student loan lender, Sallie Mae, originated as a government-sponsored lender, and the government-subsidized market only emerged out of a small but much older federal student loan market. But Title II replaced a mess with a nightmare.

Universities took advantage of the new, easier loan requirements to raise tuition rates still further. From 1995 to 2012, the average tuition at a 4-year private college had risen by 30%. In the following four years alone, it spiked by another than 12%. Researchers at the New York Federal Reserve Bank famously found in 2015 that the pass-through effect of subsidized federal student loans on tuition raised rates by 60 cents for every dollar of loans spent. Although lefty politicians love to hate on fraudulent for-profit schools and blame them for the problem, only 9% of all college students in the country attend for-profit institutions. More to the point, nonprofits still act like for-profits anyway.

For decades, student loan debt had remained in the low hundreds of billions, but during Obama’s presidency, it exploded from $150 billion to more than $1 trillion, the overwhelming majority of which is owed to the government. As student loan debt continues to spiral upward, the federal government’s revenue streams for the programs are becoming more tenuous than ever. For instance, the Department of Education has found that income-driven repayment plans, which allow lower-income borrowers to dodge payments and receive complete debt forgiveness 25 years after the loan initiation, increased by 625% alone.

Now Sanders and Warren want to erase the whole thing with a magic wand and nationalize the colleges’ tuition-hiking scam.

On a moral level, canceling student debt more or less translates to defrauding taxpayers. On a practical level, it defeats whatever incentive structure we’ve attempted to build into the loan process. Whereas home loans are secured by houses as collateral, debtors can’t exactly take your brain away when you default. To send a message both to students and colleges that loans constitute free cash will then only exacerbate the tuition crisis we face.

The federal government set the stage for this problem, exacerbated it by subsidizing and regulating private student loans, and finally sent it into a trillion dollar tailspin by nationalizing the whole mess. If the past serves as any lesson, the government’s best bet is to get out of this imploding industry entirely and refocus on forcing colleges to get some skin in the game.

August 15, 2019. Tags: , , , , . Barack Obama.

2 Comments

  1. Kyle Edward Lulka replied:

    Do you plan to do a list on the Clintons similar to what you did for Obama?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Trackback URI

%d bloggers like this: