Obama Taps Taxpayers For Student Stimulus

By Chris Stirewalt

Published October 26, 2011 | FoxNews.com

Obama Taps Taxpayers For Student Stimulus; Romney’s Nuance Doesn’t Thrill on Hill

Obama Looks to Wring Stimulus From Saturated Student Loan Market

“$1 Trillion”

-- Estimated amount of student loan debt owed by Americans.

In keeping with his new campaign theme of “we can’t wait,” President Obama today will roll out a plan to put more money in the pockets of some of the nation’s 36 million student loan recipients.

Obama has broad latitude in this area – certainly broader than the first two parts of his western campaign trip, underwater mortgages and subsidies for hiring veterans – because one of his early legislative initiatives was to have the federal government take over the student lending business in America.

Obama argued for the measure in 2009 as a cost-savings initiative, saying that the old system of privately issued, government secured loans reduced the amount of available money for needy students and also prevented the feds from making the system more efficient.

But Obama is now seeking to use that new power to obtain a taxpayer-financed stimulus that Congress won’t approve. The idea is to cap student loan repayment rates at 10 percent of a debtor’s income that goes above the poverty line, and then limiting the life of a loan to 20 years.

Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.

Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.

The president will also allow student debtors to refinance and consolidate loans on more favorable terms, further decreasing the payoff for taxpayers.

Obama’s move comes at a moment when many economists are warning of a college debt bubble that is distorting college tuition rates and threatening to further damage credit markets. The president’s move is intended to make college more affordable for more people, which will, in turn allow universities to jack up their rates.

As in the housing bubble, cheap credit on easy terms increases the amount of money chasing the product (in this case a diploma) allowing schools to increase prices. This inflation makes it harder for middle-class families to afford paying their own tuitions, driving them into the government financing program, which, you guessed it, drives up costs further still.

Obama’s goals, aside from continuing to encourage young people to spurn the private sector in favor of service jobs, is to try to juice the economy. Those who participate in the program could see their monthly incomes rise by hundreds of dollars, thereby increasing the money they have to buy stuff and try to juice the economy.

A more modest program already in place has been a bit of a bust with only 1.25 percent of debtors signing up, likely because of the unpleasant notion of additional paperwork and government reporting hassles. But by sweetening the deal and putting a big PR push behind it, Obama is betting that he can get people spending in time to help shore up his re-election chances.

The best part for Obama is that he can obligate the Treasury without Congressional approval thanks to the passage of what he described as a cost-saving measure in 2009.

Update: White House Responds

A White House official responds to Power Play, saying that the president's student loan action will "almost certainly reduce" deficit spending because of the savings the administration says will be achieved by a 2010 federal college lending takeover and what the administration believes will be a lower rate of default among student debtors due to lower lending rates.

The official also stressed that the loan program is only an expedited version of the forgiveness and refinancing rules enacted by President Obama and congressional Democrats in 2010. The original law calls for the end of participants’ obligations after 25 years and caps payments at 15 percent of a debtor’s income above the poverty line.

That legislation, passed in the Senate as a rider on the president’s health law in order to use the reconciliation process that requires 50 votes instead of the usual 60 votes due to bipartisan opposition, was promised to reduce federal outlays by $68 billion over the next decade, monies which were earmarked for cost savings and an expansion of the Pell Grant program for needy college students. The funds for the stimulus endeavor announced by the president in Denver on Wednesday are said to be drawn from that cache.