A Life Preserver, Or A Bone?

I have very, very mixed feelings about President Obama's proposal for student loans.  It calls for income-based repayments (IBRs) of 10 percent of a borrower's discretionary income (the amount above the Federally-defined "poverty line") and complete loan forgiveness after 20 years.  Currently, IBRs are 15 percent of discretionary income and loans can be forgiven after 25 years.  It must be said, however, that most student borrowers didn't even know that they had the 15-25 option until Obama made his proposal.


In any event, on the face of it, his proposal looks as if it should provide some relief for borrowers, albeit those of the Class of 2014 and later.  Minimum payments would be lowered, in theory, by a third and, in the worst-case scenario, a graduate (following the "traditional" college trajectory) could be free of debt in his or her early 40's rather than on the cusp of his or her sixth decade.


Some might say that, while the relief is something, it's too little.  In one sense, I agree.  An increasing percentage of graduates are taking jobs for which no degree is required, if they can get any job at all.  That means most of them will be earning less money, both in absolute and inflation-adjusted dollars, than graduates of previous decades who entered jobs and professions that required the training and education that students are supposed to acquire in the process of attaining degrees.  Ten percent might represent more of a financial hardship for such graduates with than fifteen percent would be on people with higher incomes.  (What I have just said, by the way, is one of the basic arguments against the flat tax.) So, while their loans will be forgiven five years sooner than they were for previous graduates, they have a greater chance of falling into bankruptcy (in which, under current laws, they can't discharge those loans) or other forms of financial ruin. That will, in turn, drastically lower their credit scores, which will keep them from getting better-paying jobs, or entering the professions for which they trained.


Furthermore, liberalizing the terms of loan payment and forgiveness could give colleges and universities even less of an incentive than they already have to limit the rate of increases in--never mind hold the line on,or decrease--tuition.  It seems that any increase in student aid, whether in the form of grants or the easing of terms for student loans, leads academic administrators to have less compunction about charging students more, and further bloating their bureaucracies.  As it is, during the past thirty years, the only costs that have increased as much, and at as quickly, as college and university tuitions are the costs of medical care.  


So, I have to wonder:  Did Obama's advisers not think about the implications of his proposal thoroughly enough?  Or is that proposal simply a bone he's throwing to a segment of the electorate--young people--who voted overwhelmingly for him, and whom he expects to do the same next year?


I say what I say, and ask the questions I ask, as someone who wants anything that will provide relief to overburdened student debtors, and will not deter future graduates from pursuing careers as district attorneys, teachers in inner-city schools and taking other necessary but relatively low-paying jobs that demand high levels of schooling.