The federal government dabbles in things that it
was never intended to and never should. Among them is the issuance of student
loans. Nowhere in the Constitution is the government granted the responsibility
and power to serve as a personal lending institution. This capital-intense
business is left to the private sector, which is best equipped financially and
intellectually to manage the risk that comes with giving people money on a
temporary basis.
The perfect example of why the government shouldn’t
be funding the college dreams of young Americans can be found in the recently
launched “Pay As You Earn” program (PAYE). The new plan, much more lucrative to
borrowers than its earlier versions, was finalized by the Department of
Education a few days before the general election (how was that for perfect
timing?). Under this program, those taking out loans after October 1, 2011 will
see their payments cap out at 10% of their annual discretionary income and,
after 20 years, the loan balance will be forgiven.
Ponder the insanity in that. One’s payments are
based solely on discretionary income – not actual income - and the government
itself defines the parameters of “discretionary”. In this case, it’s too
lenient in determining the cost of necessities. Such is expected when you
consider that for many adults PAYE works out to be an entitlement (welfare)
because they will never fully pay off their loans.
Just look at some of the examples that can be found
at barackobama.com. In advertising PAYE to parents, it listed their children’s
future earnings as $45,000 per year with an expected loan debt of $50,000.
According to the government’s formula, the monthly payment upon graduation will
be $235. That would see the loan paid off at 18 years. But, what the chart
didn’t say was that the monthly payment decreases if the graduate has a family
or earns fewer dollars. So, if you just squeak in at 18 years under a scenario
that’s in a vacuum, most people will never have paid back the government in
full before the 2 decades is up.
Another example shown in the advertising was that
of a doctor with an income of $120,000/year with an outstanding student debt of
$100,000. His payment would be $7,728 per year and he’d be paid off by Year 13.
Now, suppose a classmate of his accrued the same debt and did not pursue the
medical career because he found he didn’t like it (career changes are common
among the impetuous young) or he was found to be negligent and lost his
license. His income in another field might be $45,000 or less and he’d pay the
$235/month in the first scenario. After 20 years, he’s paid just $56,400
towards his loan and taxpayers have to eat the other $43,600. Some readers may
say this is an extreme case, but is it? The access to easy money, low repayments,
and forgiveness will cause many people to choose expensive private universities
over more-affordable state-run schools, so you will see these numbers played
out in volume.
The last scenario shown on the website was for a
teacher with an income of $40,000, 2 kids, and debt of $15,000. Her monthly
payment would be a tiny $540 per year. It would take her 28 years to pay off
her loan. If she were instead in the private sector under the same scenario,
she would have 8 years of payments forgiven.
Instead, she’s in the public sector. And, this is
where it gets really idiotic: Under the final version of PAYE, public sector
employees are given special favor and their loans are forgiven after 10 years.
So, if that teacher would have paid only $5,400 towards her loan who would pick
up the remaining $9,600? Why, you and me of course!
That ugly brand of classism – that makes public
sector employees seem considerably more important than private sector workers
(would the government want it any other way?) – shows the moral depravity of
the Obama Administration, the same one that tries to prime the pump for class
warfare between the “rich” and the “middle class.” Obama and friends seem to
forget that were it not for the private sector, the public sector would never
exist…government has to get its money from somewhere. After all, somebody has
to pay for everyone’s college bills.
Gasport
resident Bob Confer also writes for the New American magazine at
thenewamerican.com. Follow him on Twitter @bobconfer
This column originally appeared in the 26 November 2012 Lockport Union Sun & Journal
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