Obama's Cuts to Education Funding - US Student Loan Center

Obama’s Cuts to Education Funding

A little over a month ago president Obama released his budget recommendations, which landed in Congress with a dull thud.

Buried underneath the president’s proposed budget was a desperate and loud cry for help. America’s student loan programs are in a state of emergency. Default rates are at record high levels, red in is flowing and the White house is desperately trying to stem the tide.

Obama’s request to scale back certain loan-forgiveness programs may sound harsh, even cold-hearted, but that is a problem that the White House has to deal with. It definitely indicates how chaotic the situation is, and how desperate the government must be for Obama himself recommend “cuts” to education funding, and “caps” to forgiveness programs.

Federal student loans were already experiencing problems in 2011, when Obama decided to pour gasoline on an open fire. What did our president do? He loosened the standards on an existing program, lowering the cap on student loan payments for government and non-profit workers to 10% of their annual income. After 10 years, any remaining debts are wiped clean. For private-sector workers, loans are forgiven after 20 years.

Apparently Obama was surprised by the outcome. Apparently he didn’t know that when you offer to give away free money – or in this case, someone else’s money, well people will show up!

Enrollment in the forgiveness program exploded, it has increased by over 40% during the last 6 months alone. To this day, around 1.3 million people participate in the program with a combined debt burden of over $70 billion.

But these numbers are not as frightening as others in the student loan debt crisis. Total student loan debt has quadrupled over the past 10 years and now is close to reaching the $1.3 trillion, with delinquencies nearing 12%, double the rate 10 years ago.

Shockingly, while default rates on credit cards, auto loans and mortgages haven fallen below their financial crisis highs, the student loan defaults continue to soar.

A study conducted by the Brookings Institution estimates that annual budget costs for Obama’s new program will reach $14 billion. Within the prolific Stafford Loan Program, write-offs have exceeded government projections by 90 percent.

Now president Obama wants to limit or “cap” the amount of loan forgiveness per person. Specifically, the amount that a public employee could have forgiven would now be capped at $57,500, with the remainder to be paid out over a 25 year span.

Colleges these days raise their tuition and costs as much as they please, because they know that students will continue to apply, and will continue to take loans to afford their degrees. Some colleges even advertise things like: Come get your degree from us, and after a few years of making really low monthly payments you will not owe a penny!

What is happening with the education system?

Yes, education is of enormous value; but not all education is equally valuable. The government shouldn’t guarantee payment for degrees that simply aren’t worth the price. Then you have hundreds of thousands of graduates out of jobs, or landing minimum wage jobs (which a lot of times don’t even require a degree), and find themselves unable to make their student loan payments.

Moreover, why should borrowing for college be treated differently than loans for homes, cars, or health care? Student borrowers should be allowed to refinance their loans to lower interest rates, in order to continue making their timely payments but without being burdened with their high payments.

Obama’s entitlement mentality only added fuel to the fire. His sudden call for “caps” in order to restraint the loan forgiveness program looks like too little, too late.

But who is there to blame, the government, the president, colleges and universities for making stupid worthless educational programs, the students who take loans to pay for these worthless programs, their parents for allowing them to choose these programs?

It’s a vicious circle, and we are all dizzy or running around.

We need a solution, pronto!