Thursday, October 27, 2011

Obama Panders Yet Again

As I pointed out the other day, President Obama is making a bid to make Congress irrelevant. Not that there are not times when the congress-critters don’t deserve a little knot on the head every once in a while, but this blatant power grab by our socialist-democrat president is quite clear for all to see.

As most of you already know, he has decided that he doesn’t need Congress to revamp the student loan program, a program that he took over in 2010 when he signed into law a bill that removes private banks from the government backed student loan program. This bill flew under the radar a bit since it was passed shortly after the health care bill was passed. What might not be known is that as of right now, there is over $1 trillion in outstanding student loan debt. That is almost as much as the health care bill, yet it received scant attention. Prior to July 2010 the government was on the hook for about 20 percent of the balance by guaranteeing the loans. When this bill became law, that figure jumped to 80 percent (the rest are private loans).

Obama argued for the measure in 2009 as a cost-saving initiative, saying that the old system of privately issued, government secured loans reduced the amount of available money for needy student and also prevents the feds from making the system more efficient, (Source: Fox News)

First of all, when has the federal government ever ran anything more efficiently? The federal government is not designed to run efficiently. There is absolutely no incentive to be efficient. As someone who was responsible (before I retired) for overseeing my organization’s budget and can attest to how inefficient it all is. We had quarterly SPENDING targets that had to be met or we would not only lose what remained of our quarterly allotment, but we would also receive less funding the following year. We were encouraged to spend like drunken sailors on liberty. It took me a few years to really get a grasp on this. For some silly reason, I thought it was a good idea to save the government’s taxpayer money. But no, not the case. Fortunately, I didn’t completely lose my soul. By watching the money closely, I was able to get decent capital improvements for our organization. But it still felt a little dirty.

With a loan default rates in the seven to eight percent range, the taxpayer money that was used to cover these loan defaults was (very) roughly of $16 billion. Now we, the taxpayer, are going to be on the hook for even more money to pay off the defaults. Again, very rough numbers, but we are now talking about $64 billion in taxpayer funds to cover student loan defaults if the default rate remains at eight percent.

Now comes the good stuff.

Yesterday in Denver, CO, President Obama announced plans to revamp the student loan program yet again. Under his plan, pay back rates would decrease, as would the life span of the loan. I know that bureaucrats think in weird and mysterious ways, but to think that somehow this will be good for the federal government’s bottom line just doesn’t quite compute for me.
But Obama is now seeking to use that new power (the 2010 student loan bill) 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 subtracted from her total exposure.

Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy. (Source: Fox News)

I realize that Fox News is not taking into account any pay raises and promotions that Suzy might receive over her first 20 years, but even if she doubles her salary (not far-fetched) about half way through her first 20 years, we are still talking about a recoup in the neighborhood of $50K. This is still well short of the $212,000 she owes.

Only a person in love with the government could consider having to pay George Washington University $162,000 to cover the rest of Suzy’s loan (after the 20 year life span) a savings. Is this the “new math” I been hearing about for most of my life, but have never actually seen?

One last angle to look at and then I’ll be done.

This is nothing but pandering to a small, select few. Yes, a lot of people go to school, and yes, a goodly sum of those folks take out student loans. But now Obama is pandering to the Occupy Wall Streeter. You know the type. They go to school and get a degree in philosophy or French Literature. After being surprised they can’t find high-paying jobs (or any job for that matter), they want to government to forgive their loans. Well, Obama didn’t quite go all the way with this desire. But he came close. In fact, if you crunch the numbers from the example above, essentially Obama has decreed that 75% of your student loan has been forgiven. The saddest part of this? There will be some on the left who think this isn’t enough.

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