Wednesday, October 26, 2011

The best part for Obama is that he can obligate the Treasury without Congressional approval thanks to the passage of what he described as a cost-saving measure in 2009.


Obama is now seeking to use that new power to obtain a taxpayer-financed stimulus that Congress won’t approve. The idea is to cap student loan repayment rates at 10 percent of a debtor’s income that goes above the poverty line, and then limiting the life of a loan to 20 years.

Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.

Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.

The president will also allow student debtors to refinance and consolidate loans on more favorable terms, further decreasing the payoff for taxpayers.

Unitary executive proclaims student-loan regulation relaxations - HotAir

Note, though, that the actual impact of limiting payments is likely to be pretty small. Former students will see payments cut by a third, which in theory gives them more money to spend elsewhere. But Obama has also capped the payment schedule to 20 years (down from 25 in the Congressionally-enacted regulation), which means that taxpayers will end up eating more of the back end of these loans years into the future, since borrowers will pay less at these inflated interest rates and pay for a shorter period of time. How much will taxpayers lose? Since the level of lending is so significant, debt forgiveness is likely to stretch into the billions of dollars.