Saturday, November 24, 2012


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 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 Follow him on Twitter @bobconfer   

This column originally appeared in the 26 November 2012 Lockport Union Sun & Journal

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