Subsidized loans another entitlement

May 17, 2012


— Bipartisanship, the supposed scarcity of which so distresses the high-minded, actually is disastrously prevalent. Since 2001, it has produced No Child Left Behind, a counterproductive federal intrusion in primary and secondary education; the McCain-Feingold speech rationing law (the Bipartisan Campaign Reform Act); an unfunded prescription drug entitlement; troublemaking by Fannie Mae and Freddie Mac; government-directed capitalism from the Export-Import Bank; crony capitalism from energy subsidies; unseemly agriculture and transportation bills; continuous bailouts of an unreformed Postal Service; housing subsidies; subsidies for state and local governments; and many other bipartisan deeds, including most appropriations bills.  

Now, with Europe’s turmoil dramatizing the decadence of entitlement cultures, and with American governments — federal, state and local — buckling beneath unsustainable entitlements, Congress is absent-mindedly creating a new entitlement for the already privileged. Concerning the “problem” of certain federal student loans, the two parties pretend to be at daggers drawn, skirmishing about how to “pay for” the “solution.” But a bipartisan consensus is congealing: Certain student borrowers — and eventually all student borrowers, because, well, why not? — should be entitled to loans at a subsidized 3.4 percent interest rate forever.

In 2006, Democrats, trying to capture control of Congress by pandering to students and their parents, proposed cutting in half the statutory 6.8 percent rate on some federal student loans. Holding Congress in 2007, and with no discernible resistance from the compassionately conservative Bush administration, Democrats disguised the full-decade cost of this — $60 billion — by pretending the subsidy, which now costs $6 billion a year, would expire in five years.

The five years are up July 1 and of course the 3.4 percent rate will be extended. Barack Obama supports this. So does Mitt Romney, while campaigning against a “government-centered society.” What would we do without bipartisanship?

The low 6.8 percent rate — private loans for students cost about 12 percent — was itself the result of a federal subsidy. And students have no collateral that can be repossessed in case they default, which 23 percent of those receiving the loans in question do. The maximum loan for third- and fourth-year students is $5,500 a year. The payment difference between 3.4 percent and 6.8 percent is less than $10 a month, so the “problem” involves less than 30 cents a day.

The 3.4 percent rate applies only to one category of federal loans, but because the Obama administration has essentially socialized the student loan business, federal loans are 90 percent of student borrowing and this “temporary” rate probably will eventually be made permanent for all federal student loans.

Unsurprisingly, Obama has used this loan issue as an occasion to talk about himself, remembering the “mountain of debt” he and Michelle had when, armed with four Ivy League degrees (he from Columbia, she from Princeton, both from Harvard law), they graduated into the American elite. The Atlantic’s Conor Friedersdorf notes that if Washington is feeling flush enough to spend another $60 billion on education in a decade, it could find more deserving people to subsidize than a privileged minority of college students who are acquiring credentials strongly correlated with higher-than-average future earnings.

The average annual income of high school graduates with no college is $41,288; for college graduates with just a bachelor’s degree, it is $71,552. So the one-year difference ($30,264) is more than the average total indebtedness of the two-thirds of students who borrow ($25,250). Taxpayers, most of whom are not college graduates (the unemployment rate for persons with no college: 7.9 percent), will pay $6 billion a year to make it slightly easier for some fortunate students to acquire college degrees (the unemployment rate for college graduates: 4 percent).

Between now and July, the two parties will pretend that it is a matter of high principle how the government should pretend to “pay for” the $6 billion while borrowing $1 trillion this year. But bipartisanship will have been served by putting another entitlement on a path to immortality.  

Campaigning recently at Bradley University in Peoria, Romney warned students about their burden from the national debt, but when he took questions, the first questioner had something else on her peculiar mind: “So you’re all for like ‘yay freedom and all this stuff and yay like pursuit of happiness.’ You know what would make me happy? Free birth control.” While awaiting that eventual entitlement, perhaps she can land a subsidized loan so she can inexpensively continue to hone her interesting intellect.

— George Will is a columnist for Washington Post Writers Group.    


just_another_bozo_on_this_bus 6 years, 1 month ago

The rich say we're broke, so George says stick it to the students.

usnsnp 6 years, 1 month ago

All I hear is there is too much free stuff. people should fend for themselves. It is easy for some to say that especially if they have never had to worry where their next dollar was comming from, or when they went to collage that the state was funding most of the tuition. People do not want to pay taxes so this is going to be what you get, roads will go down hill, education will go down hill, there will be less firemen or police men, less emergency medical services etc. I know that some of you do not need any of these services, but most people do. And if the average young adult cannot afford to go to collage so what buisnesses will bring in educated people from foreign countries that subsidise higher education.

Betty Bartholomew 6 years, 1 month ago

What is this "free" of which people speak?

The student loans my not-privileged husband has taken in order to go to school will have to be paid back. That's the nature of a loan. We still end up paying for his education, the payments are simply deferred until he's done with school.

I'm sorry we've offended by not affording it out of pocket. :P

somedude20 6 years, 1 month ago

If a person wants to pay less for college, they should think about joining the military. While on active duity, you can go to college and many times a person's MOS will teach them a trade that replaces college. I proudly served and then went to school and accrued very little debt. Be a good citizen and serve your country then be a good human being by increasing your knowledge

Orwell 6 years, 1 month ago

Right. We need more people to joint the military, whether or not the military needs them, and whether or not they're qualified to serve, so the taxpayers can then subsidize a larger portion of their subsequent educational expenses.

Great idea. I respect your service, but not your reasoning.

just_another_bozo_on_this_bus 6 years, 1 month ago

It'd be a lot cheaper, with a better return on the investment, if war spending were reduced drastically, and much of the savings could be used to support access to higher education (education in general, for that matter.) Forcing people to detour through the cannon-fodder corps just to get an education is idiotic.

Maddy Griffin 6 years, 1 month ago

And hope like hell you make it home alive to collect on that.

jafs 6 years, 1 month ago

I'm not sure why Will calls these "subsidized" loans.

They're low interest loans, which means they're supposed to be paid back with interest.

Other than defaults, the government should make money on them.

pace 6 years, 1 month ago

The government will make money on them, and in many ways. An educated population is a win win win.

Orwell 6 years, 1 month ago

Shorter Will:

Tax subsidies for the oil companies – good. Interest subsidies for education loans – bad.

The hypocrisy is stunning.

just_another_bozo_on_this_bus 6 years, 1 month ago

And $billions in interest-free Fed loans to the very banks that trashed the economy, supposedly so they can lend it to consumers and businesses to stimulate the economy, or ease the terms on underwater mortgages, is instead used to buy US Treasury bonds, upon which they earn interest, none of which is returned to the government, the Fed, or taxpayers.

pace 6 years, 1 month ago

Will this force the oil kings to hire the best minds from other countries?

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