Policy Documents

Research & Commentary: President Obama’s Student Loan Executive Order

November 9, 2011

President Barack Obama announced in October 2011 he will issue an executive order changing the federal student loan system. His order will accelerate a plan Congress approved in 2010 capping loan payments at 10 percent of income above the poverty line, starting the cap in 2012 instead of 2014. Obama’s order also will direct the federal government to forgive all student debt 20 years after it was taken on, instead of the previous limit of 25 years.

Administration officials estimate these moves will lower loan payments for 1.6 million borrowers and make it easier for students to consolidate some federal loans. They say action was necessary to help students overburdened with college debt and unable to find jobs during the current poor economy, and to keep college in reach for more Americans so they can gain the credentials and skills necessary to flourish in the workforce.

Free-market advocates note data tying increased federal higher education subsidies and loan programs to massive increases in college costs since the 1980s as a prime reason the federal government should instead stop inflating the market. They also note the president’s unilateral actions only move up existing federal law and will, on average, reduce federal student loan payments less than $10 a month. Also, they explain, the president’s actions put taxpayers on the hook for students who default or have loans outstanding after 20 years, thus increasing federal expenditures and, ultimately, debt.

The following documents offer more information about Obama’s federal student loan executive order.

Student Loans Outstanding Will Exceed $1 Trillion This Year
The amount of student loans taken out in 2010 exceeded $1 billion, and in 2011 total student indebtedness will surpass $1 trillion, reports USA Today. Americans now owe more on student loans than on credit cards, and we are borrowing twice as much now for college as we were a decade ago, after adjusting for inflation. This debt will burden young people and force them to delay choices such as marriage and buying a home, analysts say.

Obama Using Education Issue as Political Sword
With Obama’s low approval ratings, high unemployment numbers, and stalled jobs bill in Congress, he has turned to executive orders in education to score political support, writes Michele McNeil in Education Week. He and Education Secretary Arne Duncan keep saying “we can’t wait” as they unilaterally waive No Child Left Behind and restructure student loans.

Kline Statement on President’s Plan to Bypass Congress, Change Federal Student Loan Policy
Obama’s plan to restructure federal student loans will evoke more borrowing and bypasses Congress’s authority, said House Education and Workforce Committee Chairman John Kline (R-MN). The president should get off the campaign trail and work with Congress on the 15 bipartisan job-creation bills it has passed, Kline said.

Obama’s Student-Loan Order Saves the Average Grad Less Than $10 a Month
The president’s executive order reducing and consolidating federal student loan payments is not likely to have much impact, because it will save the average debtor less than $10 a month, writes Daniel Indiviglio in The Atlantic. Student loans have grown more than 500 percent since 1999, he writes, while disposable income has risen 73 percent. The president’s order largely moves up existing legislation and will put little money in students’ hands, which means it is mostly a reelection tactic, Indiviglio concludes.

Obama Remakes the Student-Loan Industry
Actions by Obama to restructure federal student loans benefit the federal government at student expense by lending them money at more than five times the rate it pays to borrows it, writes Annie Hsaio on National Review Online. The government keeps the difference to spend on other programs. This makes the Secretary of Education one of the top financial executives in the United States and is likely to add to U.S. debt as student loan default rates continue to rise. Instead of relying on gimmicks, she says, the nation needs to enact meaningful reforms to reduce national debt burdens for tomorrow’s taxpayers.

Editorial: Out-of-Control College Tuition
Obama’s plan to unilaterally change the federal student loans program will make earning a college degree more expensive, write the editors of the Washington Times. Colleges and universities have been charging increasingly exorbitant sums in recent decades, mostly because increases in federal higher education subsidies let them get away with it. Colleges have no reason to control costs if young people can easily obtain loans and have the federal government reduce or forgive them.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the School Reform News Web site at http://news.heartland.org/education, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland education policy research fellow Joy Pullmann, at 312/377-4000 or jpullmann@heartland.org.