President Obama’s recently proposed budget has been widely dismissed as “dead on arrival,” since the Republicans control both houses of Congress. But it’s not completely dead. Politico has the story:
In obscure data tables buried deep in its 2016 budget proposal, the Obama administration revealed this week that its student loan program had a $21.8 billion shortfall last year, apparently the largest ever recorded for any government credit program.
The main cause of the shortfall was President Barack Obama’s recent efforts to provide relief for borrowers drowning in student debt, reforms that have already begun to reduce loan payments to the government. . . . The $21.8 billion revision—larger than the annual budget for NASA, or the Interior Department and EPA combined—will be tacked onto the federal deficit. [Emph. added]
So by the stroke of his pen—that is, by unilaterally easing the terms of the education loans the government doles out—President Obama has single-handedly boosted the budget deficit by over $20 billion. That’s not a trivial amount, by the way. It adds up to fully 5% of this year’s expected budget deficit. Wonderful!
This is just the latest indication of what a travesty the government’s higher education loan program has become. On the one hand, the government is happy to provide education loans (read: “saddle young people with massive amounts of debt”) to anyone who wants one. The government engages in exactly zero risk underwriting in the process, by the way, so that it knows for certain that it’s giving money to people who won’t be able to pay it back.
And then because the government is handing out so much money to so many young people, the higher-education industry is choked with students, and is churning out many more diplomas than there are jobs available that actually require them. End result: too many students are weighed down with too much debt—and then can’t find jobs that pay enough to service it. Who gets to pay for this mess in the end? Why, you do! And your bill just rose by $21.8 billion. (And by the way, expect the bill to go higher. The cost of higher education has risen at four times the rate of inflation over the past 40 or so years.)
This is ridiculous. If the CEO of a bank in the private sector presided over a sudden $21.8 increase in his bank’s loan losses, he’d be immediately fired by his board, and likely hounded for years by suspicious regulators. And rightly so. Now that I think of it, critics of the banking industry accused subprime lenders of engaging in the very same behavior the Education Department is now doing—handing out money to people they know won’t be able to repay it—and are still demanding that the people who ran those lenders be thrown in jail. Yet any improper lending mortgage lenders did is nothing compared to what the Education Department is up to now.
The ideal solution to this mess would be for the federal government to get out of the education-finance business altogether and then stay out. Once the firehose of federal tuition dollars is turned off, colleges and universities will magically find ways to whack away at their bureaucracies, get rid of bogus majors, cut costs generally. Annual tuition increases would suddenly turn into annual tuition decreases and sooner or later college would actually become affordable again.
But don’t expect that to happen anytime soon. As long as a president (any president) has the power to unilaterally give away freebies to voters the way President Obama is doing now, the price tag to taxpayers will only go up.
What do you think? Let me know!