Republicans Showing Weakness Against Obama’s Student Loan Duplicity

Thursday, April 26th, 2012 and is filed under Blog, Debt, Economy

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We all must admit that Democrats have concocted an insidious, yet highly successful political model.  They pick a sector of the economy – be it housing, healthcare, food, energy, or education, and they blow it up with government interventions.  Those interventions serve to distort the market, artificially inflate the price of that sector of the economy, and engender a need for subsidization.  Then Democrats get to look like heroes by offering handouts to solve problems that were created by them in the first place.  Unfortunately, Republicans have done a lousy job of pinning the tail on the donkey and reminding the public who originally caused these policy vices.

Obama and his allies in Congress are using fledgling college graduates as political human shields to reauthorize the reduction in interest rates for government subsidized Stafford loans to undergraduate students.  They fail to mention that it is these subsidized loans, which were meant to be temporary, that have driven up the cost of tuition exponentially.  They obfuscate the fact that more subsidization will offer a perverse incentive for education providers to slow the growth of tuition rates.  But Republicans are largely silent in cornering them on this point.

Furthermore, Obama is traipsing around the country claiming that if the interest rate reduction, from 6.8% to 3.4%, is not reauthorized, students will see their student loans double.  That is a bald-faced lie, and he knows it.  As former CBO Director Douglas Holtz-Eakin points out, if the original 6.8% rate would relapse, it would have zero effect on the $1 trillion in loans already actualized.  It would only effect future undergraduates who apply for Stafford loans.

Moreover, although the $6 billion cost to the government is significant, and the inflationary cost to the private sector is dramatic, the savings for students taking out new loans is negligible.  They would save only $7 per month, and most borrowers would not see this impact for several years because payments are deferred until 6 months after graduation.  To suggest that current borrowers would be dramatically effected is nothing short of lying demagoguery at its worst.

Instead of calling Obama out on  his duplicity, John Boehner announced that he plans to take up the extension on Friday.  As always, Republicans are asserting that they will offset the cost with spending cuts elsewhere in the budget.  But we know how this will end. Democrats are demanding that the cost be paid for with tax increases on S-corporations; Republicans are demanding spending cuts, but ultimately, it will be extended without either of them.  This is how we lose the fight for limited government and fall right into the Democrat trap to purvey their cycle of government dependency.  It also doesn’t help that the “leader of our party” is offering a full-throttled engrossment of this scheme.