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

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.

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