This week Obama announced a more aggressive version of his original plan to help people saddled with student loan debt.  The details are pretty simple, under the new plan you won’t have to pay more than 10% of your income towards student loans and after 20 years of doing that whatever else you owe is forgiven.

People with student loans now won’t really benefit from it, the details are beyond the scope of this article but you can read about them here.  It will help some people going forward.  But, analysis of the benefits shows it will really only help people making $32k a year or less.  I don’t stand by those numbers myself, but the point is that based on the average debt burden of a grad, there isn’t a whole lot of benefit.

There are two groups that really do benefit though.  The first group are grads who majored in Studio Art at Middlebury and financed their 4 years of Vermont-based partying.  They have good friends who went to state schools but still borrowed the maximum amount and used the refund checks to buy beer and weed only to end up working as a barista and collecting tattoos of images they don’t really understand.  Neither of these groups were especially responsible with their time at college and have loads of debt they can’t afford.  The loan program will help them quite a bit.

The second group we know all too well.  We see them every weekend in the fall.  The schools!  Who would benefit the most from making it easier and easier to pay for college?  The colleges. By making loans easier to pay, Obama increases demand for college.  Increasing demand leads to increased prices (tuition).  This is a side effect of Obama’s plan to increase the number of college graduates by 2020.  But that’s like curing cancer with an increase in heart disease.  All the while grads will still have to pay back their loans because they aren’t bankruptable. Having college grads doesn’t mean anything.  Having college grads in chemistry, computer science, and engineering and jobs for them when they enter the workforce does.

And for those expecting relief in not having to pay them back after 20 years…. really?  You don’t think you’ll have them paid off after 20 years?  How slow is your income going to grow?  Under all but the most extreme circumstances, all you’re going to do is substantially increase the amount of interest you pay on the loans.

This amounts to charity.  It helps the people in the worst of circumstances no matter how they got there.  Yes it is needed, but there’s a reason I don’t give money to people sitting on the median in intersections.  I believe my dollar will go a lot farther treating the problem, or trying to prevent it.  To try to solve these problems by treating the symptoms only is irresponsible in my opinion.  It’s better than nothing I suppose, but without some measures to help solve the problem of driving up debt in the first place it’s just a handout.

Photo: saketvora

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categories: education, government, loans, personal finance