The following was written by North American Executive Board Member Gannon LeBlanc.
President Obama recently announced the expansion of the federal government’s Pay As You Earn program, which helps students who take out government loans manage their debt. The program will cap monthly payments at 10 percent of monthly income with loan forgiveness after twenty years of timely payment, or ten years if the student works in nursing, education, or the military. At first glance, this might sound like a well-intended program, but there are two primary issues with it. The first is that this is a bandage for a problem that the government created and does not address the real issue of the student debt crisis. The second is that this program still harms student borrowers over the long run.
I myself am one of the millions of students with a decent amount of college debt and I don’t support this program. It is the equivalent of a doctor trying to apply a cast to an arm that they themselves broke and asking me to thank them for the cast. As this image shows, the cost of attending college has skyrocketed far and beyond the inflation rate. Prices have increased rapidly because the government is offering students easy access loans to attend college, such as Federal Stafford loans. In total, the government spends $99.7 billion a year on loans and other financial aid programs for higher education. However, they profited $41.3 billion last year from these loans. This is profit, not revenue from student debt. The government is not the private sector; it shouldn’t be profiting off of students they claim to be “helping.” The federal government is not helping students; it’s throwing us into debt that not even bankruptcy can save us from. This is another way to generate extra government revenue without having to call it a tax.
Now, I don’t blame the universities for price gouging; it’s basic economic incentives. They see the government offering students tons of money in easy access loans and the only way universities can reap this loan money is by increasing their prices. It’s also supply and demand. With access to easy loan money, many more students are going to college regardless of whether it’s actually the best option for them. This large increase in demand for college education causes prices to increase.
When our parents were going to college in the 1980s, their average cost of tuition per year was about $2000 for a public four-year college. In the past three decades, it has tripled to $7600. It was once possible to go to school and work part-time to pay for your entire degree. Now even working full time, students still often have to take out loans to afford college.
The US government and President Obama think they are helping us with this new loan refinancing program. However, once the fine print is viewed, it’s just another bureaucratic hurdle college students and graduates will have to navigate. If payments are not made on time, then the twenty year forgiveness is negated. Since students are paying less over longer periods of time, they are actually paying more than ever for college. Interest is allowed to accumulate, thus causing the total amount students actually pay for their degree to skyrocket.
That’s not to mention the macro effects of student debt relief. With loans being forgiven and less money paid out per month, it’s important to ask who will pay in the long term. Currently it’s not an issue, since the government is profiting so grossly from students. But what will happen in twenty years when we start to see many individuals having portions of their debt forgiven? These are potentially powerful and dangerous effects of government intervention in higher education.
If President Obama and the US government truly care about us students and our education, they need to understand that their programs are only getting in the way by creating false price indicators in the market, forcing students into complicated and confusing bureaucratic plans, and producing negative externalities. Leave higher education alone so that we as individuals can take responsibility for ourselves, instead of being a cash cow for government profit and shackled by inescapable debt.