Just last week I wrote on Pick Your Future about the growing and out of control student loan industry, and it seems like the issue has reached the highest levels of government.
The Obama Administration released a plan to deal with this problem and to set things right, but is it truly a solution? As with all contentious policy proposals by presidential administrations, there is always a deeply political element to every plan endorsed.
The politics behind the plan are far less important to regular people than what will actually happen with the policy.
All the way back in 2010, there was a massive federal intervention into the student loan industry. This was intended to get costs under control and ensure that the next generation has easy access to the highest levels of education in this country. Banks were given huge subsidies to lend money to students across the United States, even in situations where there is a high risk of default. The intent was to ensure access to education for student from low and middle income families.
There were certainly people who were critical of that plan at the time, but the opposition was only mild because it wasn’t seen to be the critical issue of the day.
Essentially the banks have no financial risk because the government will simply step in if a large amount of loan recipients default. In many regards the situation sounds similar to the housing bubble that burst in 2008, nearly bringing down the American economy. Obviously, nobody wants that to happen.
So the latest plan will cap student loan payment to give students a little more leeway and cash in their pockets. But an Atlantic article peeked into the numbers and showed that the money staying in student’s pockets remains rather miniscule. The savings would be around $10 a month. That’s not exactly a bonanza.
Simply pushing the loan industry to forgive unpaid student loans could make student debtors happy in the short term, but would be financially ruinous in the long term. An education requires money and someone, somewhere will have to pay for it.
The problem with what amounts to a bailout of students and the student loan industry, is that it merely tries to cure a symptom to a much larger and deeper problem. Unfortunately the “cure” might make the problem even worse than what we had before.
If there is a comparison it would be like how doctors in the 18th century used to bleed their patients and give them mercury to clear their system when they became sick. The result was usually that the patient became more sick or even died.
The costs of education for either students or other members of society are becoming prohibitive and that is the huge problem the nation is facing. The reason that so many students can’t pay back their loans right now is because they can’t find a job even after receiving a high priced degree.
There is sure to be much more information to come as the situation develops.