Obama’s Unilateral Student Loan Relief Will Save Average Student Less Than $10 Per Month

President Obama has promised to act unilaterally, bypassing Congress, to bring student loan relief to America’s students. Which, with thousands of those students crowding “occupy” protests around the country where student loans are a typical gripe, is a savvy political move.

But setting aside for a moment questions over the President short-circuiting the legislative process with executive orders, would these policies actually work to improve the situation students find themselves in?

Not likely says The Atlantic noting that the polices would likely save the average college student less than $10 per month.

For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.

Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn’t going to save the economy. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.

The problem with the student loan bubble (and it is a bubble) is the same problem that was the root of the housing loan bubble. Namely, government subsidies for financing loans as well as regulations which required that lending standards be lowered.

Banks, whether they’re making student loans or home loans, aren’t in the habit of lending money to people with a low probability of paying it back. The only way these students are able to accumulate almost unpayable levels of student loan debts is because the lenders (not prone to making such bad bets on their own) are either being subsidized into issuing them, or mandated by law.

The market has been distorted by government policy. Remove the government policy from the equation and you don’t get the student loan bubble.

Of course, that would also mean making a college education something you earn, as opposed to an entitlement, which many find to be anathema.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • robert108

    “Of course, that would also mean making a college education something you earn, as opposed to an entitlement…”

    The consequence of that would be that higher education would have to be affordable for people to buy it, just like a regular product.

  • http://flamemeister.com flamemeister

    Hey!  When I went to college ten bucks was half my monthly entertainment budget!

    • SigFan

      Not even enough for a slice of pizza and a beer these days.  But these idiots are gong to be fawning all over Obama for helping them get out from under their rock … er, debt.

    • borborygmi

      Yah but 3 for a  buck  went a long way.

      • http://flamemeister.com flamemeister

        You talkin’ about the beer or the women?

  • Jamermorrow

    The biggest problem with the plan you did not even mention. The biggest problem is the loan forgiveness program. Students are now able to only pay 10% of their monthly income to student loans. After 30 years the loan is forgiven. Obama wants to lower it to 20 years. Say you are $200,000 in debt and make $40,000 a year. You would pay roughly $4,000 a year for your student loans. After 30 years you would pay $120,000 on the loan after 20 years only $80,000. The rest would be absorbed by the taxpayers. If students know the debt will be forgiven why would they care what the price of school is? If you only have to pay 10% of your income why would you care what your total debt is? This plan will drive up school costs dramatically because students will not care what college costs. Schools might as well offer more luxury’s and incentives rather than keeping costs down.

  • yy4u2

    Just another, “you’d think they’d be thanking” moment in Obama’s mind.

  • Davoarid

    “You
    can’t blame 18 year olds for being stupid enough to believe that a
    lib-arts degree was worth borrowing $100,000 to pay for. But Wall Street
    never sold them that lie, and nobody’s protesting against the people
    who did.”

  • http://obama.net/college-grants/ grants for college

    Grants
    for College – Receive a Free College Grant to take classes! You can get grant
    money to further your education that you never have to pay back.

    • JustRuss

      Irony anybody?

      • ellinas1

        The irony is Rob’s numbers do not add up.
        I know, I know, he got the numbers from The Atlantic, but one would hope Rob would be honest enough to check, instead of propagandizing.

        • robert108

          Nonsense.

          • ellinas1

            Ummm, OK.
            You always know best, even though you are almost always wrong.

        • JustRuss

          No, the irony is an article about the evils of government giving free money for college attracts the spam of someone trying to give away free government money for college.

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