Heartland Institute Responds to Obama’s Student Loan Executive Order

October 26, 2011

President Obama today announced a plan to provide relief of student-loan debt via executive order. His order would allow borrowers to pay no more than 10 percent of their “discretionary income” against the loan, and forgive the debt entirely after 20 years. The president’s executive order also makes it easier for borrowers to consolidate their student loans, and reduces the interest by a half-percent.

The following statements from fellows at The Heartland Institute—a free-market think tank—may be used for attribution.

For more comments, refer to the individual’s contact information below. To book a Heartland guest on your program, please contact Tammy Nash at tnash@heartland.org and 312/377-4000. After regular business hours, contact Jim Lakely at jlakely@heartland.org and 312/731-9364.

“Since President Obama can’t govern by consensus with Congress, he’s increasingly turned to his favorite approach: administrative fiat. With this proposal, the president again runs up public debts that must one day be paid through taxes from the same young people he’s politically pandering to now.

“Obama’s ‘generosity’ comes at taxpayer expense. Student loans and debt do need to be addressed, but the answer is not pushing more unprepared students towards ever-deteriorating public colleges and financing their adventures with public money.

“A better plan Congress could pass would include allowing student debt to be settled in bankruptcy courts, reducing federal college spending so universities have less reason to raise tuition to capture public dollars, and ending the mad push for everyone to attend college when diverse post-high school training paths suit individuals and society better.”

Joy Pullmann
Research Fellow, The Heartland Institute
Managing Editor, School Reform News

“While feeling sympathy for people who borrowed large amounts of money to finance education that didn’t pay off for them, it’s wrong to force taxpayers to pick up the tab for other people’s mistakes. The compassionate thing would be to stop luring people into taking on debt for higher education that doesn’t increase their earning power. If people want to finance an education for their personal well-being, the government has no right to force that responsibility onto third parties, the taxpayers. All this policy does is encourage further poor college-investment decisions by young people, and thereby create more unsustainable debt for them—a classic case of moral hazard.”

“The Obama administration says this new scheme won’t cost any additional money, but we know from abundant past history that this will tap the taxpayers for many additional billions. Higher education is expensive precisely because the federal government pours so much money into it. The way to stop higher education cost inflation is to turn off the government spigot and allow students to judge for themselves what is the best use of their time and money, by making them responsible for the consequences.”

S.T. Karnick
Director of Research
The Heartland Institute

“President Obama’s executive order will teach college graduates that contracts they sign aren’t worth the paper on which they are written, as long as they have a president willing to pander to them.

“Obama administration officials claim the order will have no cost to taxpayers—a highly dubious claim—but it will surely have a cost to lenders, who will also learn a lesson: Don’t trust government to see that contracts are enforced, which had been a bedrock duty of government. When lenders must worry about their loan contracts being changed on a president’s whims, we can expect less lending.”

Steve Stanek
Research Fellow, Budget and Tax Policy
The Heartland Institute
Managing Editor
Budget & Tax News

“The idea that this change will not cost taxpayers any money is questionable. When a lender is forced to take less money than promised in the original loan, that lender must come up with more money from another source. This is true whether the lender is a bank or a government agency.

“Therefore, this policy change amounts to little more than a campaign play to the president’s shrinking base. It would be better for graduates if they were able to enter an economy that was producing private-sector jobs. Unfortunately, the president’s other policies in taxes and regulation are undermining the rest of the economy. This loan giveaway, therefore, is merely another addition to the cycle of dependency.”

Bruno Behrend
Director, Center for School Transformation
The Heartland Institute

“The recent discussion over student-loan debt seems to overlook one of the underlying problems that plagues higher education: rising tuition. The current system is a vicious circle: With government guarantees backing student loans, tuition rates will inevitably rise, leading to more student loans backed by taxpayer dollars.

“The best solution isn’t more loans and grants but, rather, systemic changes that give universities incentives to keep tuition under control. Until we solve the underlying spending problem in higher education, we will likely be addressing this issue again a few years from now.”

Matthew Glans
Midwest Director, Center on Finance, Insurance, and Real Estate
The Heartland Institute

The Heartland Institute is a 27-year-old national nonprofit organization with offices in Chicago, Illinois; Washington, DC; Austin, Texas; Tallahassee, Florida; and Columbus, Ohio. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site or call 312/377-4000.