Late last month, President Obama unveiled his “Pay as You Earn” student loan relief plan, which he intends to impose by executive authority. According to the White House, this new plan would allow student loan borrowers to cap their student loan payments at 10 percent of their discretionary income beginning in January 2012, regardless of how much they owe. In addition, if a graduate is unable to pay back the entire loan within 20 years, the remaining debt will be forgiven.
[pullquote]As I raise my children, there are times I feel thwarted at every turn by policies like this one.[/pullquote]As a result of this executive order, a graduate with $40,000 in federal student loans and an adjusted gross income of $30,000 a year could see his or her monthly payments drop from $460 in the standard 10-year repayment plan or $278 in the 25-year repayment plan to just $115 a month. Doesn’t this sound like a great deal for students?
Perhaps, but as a parent I have a problem with this proposed scheme.
This plan completely contradicts many of the values I am trying to instill in my three school-age children. You may recognize which values I mean. I encourage my children to save some of the money they earn by doing chores. I model to them how we, as a family, live within our means and adhere to a budget. My husband and I encourage our children to work hard, use their God-given talents and abilities, take responsibility for their actions, and be accountable for the results of their efforts. We encourage them to develop personal integrity, always behaving and communicating with honesty. And, just as important, we demonstrate fiscal responsibility by paying back our debts.
We are fortunate here in Utah that our students have incurred the lowest average student loan debt – $15,509 – compared with students in other states. According to CNNMoney, students in the most indebted state – New Hampshire – owe nearly double. However, allowing borrowers to extend the years to pay back a college loan only increases their indebtedness, as the principal incurs ever greater interest charges. At the current 7.9 percent rate of interest, each student’s debt doubles every 10 years!
The policy also provides the wrong incentives for selecting courses of study. Knowing that their debt will eventually be forgiven, students may not be motivated to select majors that will allow them to become productive and self-sufficient. Sadly, we could be seeing more signs that read like this one: “$96,000 for a BA in Hispanic transgender gay & lesbian studies and I can’t find work!”
Not only that, but this plan could harm taxpayers just as much as it harms students. The Wall Street Journal pointed out that “a student who finances an expensive education and then pursues a career with meager salaries could be sticking taxpayers with five- or even six-figure losses by year 20. The loan then becomes a very expensive grant.”
As I raise my children, there are times I feel thwarted at every turn by policies like this one. According to an ABC News report, Obama recently warned his supporters during a fundraising speech in San Francisco that if he were to lose the 2012 election, Americans would have to rely on themselves instead of government:
“[W]e’re going to have a government that tells the American people, ‘You are on your own. If you get sick, you’re on your own. If you can’t afford college, you’re on your own. …”
James Taranto of The Wall Street Journal responded: “Oh no! Horror of horrors! Obama is the only thing standing between us and having to rely on ourselves! And do you know what they call people who rely on themselves? Adults.”
I take comfort in the notion that if I teach my children well and continue to instill in them these values, they will behave in a responsible and independent manner. However, it is tempting for students to reject the principle of personal responsibility in favor of a “free lunch” that is paid for by their neighbors and mine. To continue to build a strong, productive nation, government policies should support – not inhibit – the efforts of parents to teach self-reliance, responsibility and fiscal prudence to their children.