The Democrats’ Student-Loan Weapon Andrew Kelly And Kevin James
http://online.wsj.com/articles/andrew-kelly-and-kevin-james-the-democrats-student-loan-weapon-1410997498?mod=Opinion_newsreel_3
Wooing young voters with a $58 billion plan that gives money primarily to college graduates who don’t need it.
Democrats face an uphill battle in their quest to hold the Senate in November. In their effort to get an edge, they’ve targeted one group in particular: college-educated voters with student-loan debt. Democratic plans to help student-loan borrowers have been a key talking point on the campaign trail this year, and sit at the center of the party’s “Fair Shot” agenda.
Massachusetts Sen. Elizabeth Warren has become the party’s chief evangelist on the issue, thanks to her proposal that would allow borrowers to refinance their student loans at current rates, supposedly paid for with a tax increase on millionaires. After Republicans blocked Sen. Warren’s bill in June, she went straight to Kentucky to campaign against Minority Leader Mitch McConnell, and has accused him and fellow Republicans of “choosing to side with billionaires instead of with students.” This week Sen. Warren and her fellow Democrats raised the issue again as the campaigns enter the home stretch.
Sen. Elizabeth Warren in Kentucky campaigning for Democratic Senate candidate Alison Lundergan Grimes at the University of Louisville, June 29. Timothy D. Easley/Associated Press
Democrats want to define the student-loan debate as a choice between poor college students and the super rich. But Sen. Warren’s ideas are an expensive and ineffective way to ease the burden of student debt. Worse yet, they set up a far more troubling tension: Lavishing federal money on the college-educated erodes our ability to help disadvantaged students make it to college in the first place.
Take Sen. Warren’s refinancing plan. Allowing former students to refinance at lower interest rates would bring down almost every borrower’s payments. So while this would provide some modest assistance to those who are struggling to pay back their loans, it would also give nearly three-quarters of borrowers who are doing fine a handout from the federal government. Think of it as a stimulus package for the college-educated.
The Congressional Budget Office estimates that the refinancing bill would cover virtually all existing borrowers and cost the federal government $58 billion over 10 years. To put that number in perspective, that’s enough to give roughly six million of our neediest students starting school this fall an additional $2,000 a year in grant aid for the next four years. That money could make a difference for millions of poor high-school graduates who have worked hard to make it to college. Research on financial aid has found that a $1,000 increase in grant aid to needy students translates to a three to six percentage-point increase in college enrollment.
The thing is, an expensive refinancing plan isn’t even necessary to help struggling borrowers. It turns out there are ways to provide better protections than borrowers would get under refinancing, without breaking the bank. Borrowers with federal loans currently have the option to cap payments at a manageable percentage of their income—a program known as Income-Based Repayment (IBR). Unfortunately, students must opt into IBR, and it requires additional paperwork and documentation, meaning that the borrowers who need it most often fail to take advantage of it. Worse yet, the program’s loan-forgiveness provisions are skewed toward high-debt graduate students, setting taxpayers up to pay for a lot of expensive graduate and professional degrees.
The good news: A bipartisan group of lawmakers—including Democrats Sen. Mark Warner and Rep. Jared Polis and Republicans Sen. Marco Rubio and Rep. Tom Petri—has introduced bills in both the House and Senate that would reform the Income-Based Repayment program to make it automatic, simpler and less costly. These bipartisan bills would ensure that all borrowers can afford their monthly payments while implementing changes designed to make them revenue neutral (though the CBO has yet to weigh in officially on the impact of the bills).
While some might disagree over particulars, the fact that there are bipartisan bills that would better protect borrowers at lower—or potentially zero—cost should raise serious questions about Democrats’ priorities. Is it truly doing right by anyone to take money that could help a new generation of low-income students get access to college and spend it on large numbers of college graduates, only a portion of whom are struggling?
Sen. Warren would likely argue that we are unfairly framing this as a zero-sum game. After all, her legislation supposedly pays for itself by raising taxes on millionaires. But policy makers always have an obligation to ask themselves whether they’re tackling a problem in the most effective way before asking for even more money.
This is not a choice between billionaires and students. Instead, it’s about a political party that has figured out that young, college-educated borrowers are a growing constituency who can be energized with generous post-college handouts.
Mr. Kelly is director of the Center on Higher Education Reform at the American Enterprise Institute. Mr. James is a research fellow at AEI.
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