Greensburg Daily News, Greensburg, IN

Columns

April 24, 2014

Taylor Armerding: Warren's populist pitch on student loans is off key

(Continued)

One wonders if she will define a millionaire like President Obama does – anybody who makes one-quarter of $1 million?

She also wants student borrowers to be able to eliminate their debt through bankruptcy - take that, you greedy, profit-hungry federal government! - and wants colleges penalized if large numbers of their graduates default on their loans. That’s right, teach young adults right away that if they fail to pay back a loan, they should blame it on somebody else.

This is pure demagoguery. Even the left-leaning Brookings Institution called her interest-rate proposal last year a “cheap political gimmick.”

And, of course, there is no context to her rhetoric. Student loans, at 3.8 percent, are right around where mortgage rates are. But mortgages are secured by collateral – the house. If the borrower defaults, the lender can seize the property. Students have little or no credit history and offer no collateral, other than the vague expectation that they will get a job and pay it back with their expected income.

Warren’s claim that the federal government earns “enormous profits” from gouging students is equally flawed, conveniently omitting half of what the federal Office of Management and Budget predicts. The agency reported last June that the government might realize a maximum of $182 billion from student loans over 10 years. That’s $18.2 billion a year - not even a rounding error in a budget of trillions. It also said student loans could cost the government $95 billion over the same period, depending on the default rate.

That default rate is now more than 20 percent. Federal law also forgives the remainder of student loans to those who work in the public sector and make 120 payments (generally 10 years.) Warren, as said earlier, also wants to allow student debt to be liquidated through bankruptcy.

So, which scenario seems more likely, big profit or big losses? Even Sen. Warren ought to be able to do that kind of math.

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