A Look at Student Loans: Who Pays the Price of Higher Education?

November 1, 2011

by Larry Goldsmith, C.P.A., J.D., C.F.F.A.

Speaking at the University of Colorado in Denver recently, President Obama announced new executive actions to lower student loan payments. The initiative accelerates an income-based repayment plan that reduces the maximum required payment on student loans to 10% of annual income.

The measure was supposed to go into effect in 2014, but the president now wants it to start next year. The president says by lowering loan payments, people will feel more confident buying houses and making other purchases that will give the economy a much needed boost.

This sounds great, right? Student loans are the No. 2 source of household debt, and who can argue with lower loan payments? But I am concerned that many Americans fail to understand the whole picture.

Two years ago, the president took student loans out of the private sector and decreased bank profits. Banks are bad and they do not vote.

The net result was more Pell grants and more students going to college. As an economics major  (or even an English major who understands the principle of supply and demand) you could have predicted this would lead to a substantial increase in tuition, making it harder for middle income families to send their kids to college.

People in my income bracket do not generally qualify for need-based grants and scholarships and we also generally do not have the income after taxes to pay for college without loans,

Nationally, student loan debt is greater than credit card debt because without the involvement of private companies, we now have higher school costs and increased debt defaults.

With Obama’s recent actions there will be greater loan forgiveness by the government which means that this entitlement program will be a casualty increasing the American debt. As I am part of the 50% of Americans who pay taxes, why should my burden be greater than others?

Now you may say that college education creates the future of our country, which is true. And there are students who will have their dreams of a better life realized in this way. But is the country to serve a few or are we the people to serve the country? Or is the middle class to serve the majority and suffer a greater share of the financial burden?

Our country’s challenges require complete and considered programs, not patchwork solutions. The current student loan programs are an example of policies that sound good to the masses, yet create a greater debt crisis and future problem. And you don’t even need a college degree to see that one, right?