President Barack Obama announced his plan to provide relief to student loan debt during a speech in Denver last week.
In addition to allowing some borrowers to consolidate federal loans, he also called for reducing loan payments to 10 percent of income, down from 15, and forgiving debt after 20 years of payment, down from 25. Congress had already approved these measures to be implemented in 2014, but Obama wants to start next year to help current students who face record high debt, totaling more than $1 trillion, according to USA Today.
While Obama’s plan is another well-intentioned step to jumpstart the economy, and certainly few graduates will complain about having their debts reduced, his initiative sends the wrong message to students and graduates.
Federal student loans are already more affordable than private loans, and though students are borrowing more than ever before, they should take full responsibility for their debt. Surely most students realize when they sign for the loans that they will, someday, have to pay them back.
If, perhaps, new students fresh from high school are uninformed about the dangers of debt, then Obama’s “Know Before You Owe” plan, which will arm students with fact sheets about loans, should provide the necessary education. Debt forgiveness does nothing to teach responsibility.
The end of a White House press release that accompanied the speech states, “These changes carry no additional cost to taxpayers.” This may be true, but it will cost the government, which will get less back for the loans it pays out thanks to these changes and a high loan default rate at 8.8 percent in 2009, the most recent year for which data is available, according to USA Today.
According to the press release, approximately 5.8 million borrowers were forced to make two separate loan payments after the government switched from federal-backed loans to direct lending in 2010. Obama proposed consolidating these loans, potentially reducing payments and interest rates.
This measure makes sense, as the government was responsible for the lending change. However, the government did not make students take out enormous loans.
These changes could help millions of Americans, but the method is less than ideal. Though the potential cost pales in comparison to government bailouts to banks in recent years, it is unfortunate to think students are now in need of rescuing.