Thursday, April 26, 2012

Student Loans

The student loan debate currently being pushed to the forefront by President Obama is like the rhetorical gift that keeps on giving.  I could write pages on the interesting facets of this, but I'll start with the basics:

In 2008 the Democrat controlled House and Senate passed, and President Bush signed, a law lowering the interest on Federally backed student loans from 6.8% to 3.4% for 5 years.  Those 5 years expire this year and so presently the President is going around talking to college campuses about how he wants to stop the Republicans from raising the interest rates and how he understands the plight of these poor college students having to pay on their student loans because he and the First Lady just paid off their loans 8 years ago.  Romney and the House Republicans (lead by Boehner) also want to extend the lowering, but Boehner wants to "offset" the cost by reducing the expenditures in Obamacare.

There are so many interesting quirks to this it's hard to see where to start, but I think I'll pick the fact that this shows us how invasive a "temporary" program is.  I didn't really follow this particular debate in 2008, but I'm sure there were 10 year budget projections showing what this cost, under the assumption that it only lasted 5 years.  But now, 5 years later, the debate isn't about lowering student loan income, it's about preventing it from going up.  Both politicians and commentators frequently take the sunset clauses on these "temporary" programs seriously.  They shouldn't.  If it was a good idea to lower student loan interest rates, it should have been done in perpetuity (the same is true for the Bush tax cuts).  The only difference between cutting student loan interest rates (or taxes) for 5 years and forever is that you get to debate it again in 5 years with a "temporary" program, and blame the other side for wanting to go back to the status quo ante (even though that's actually what you agreed to do when you created the program).

The second interesting thing is that the President's student loans dragged him down so much that he couldn't pay them off until just 8 years ago.  After he had bought a condo (and a house) and "should have been saving for [his children]".  Obama received a $100,000 advance for the publication of his first autobiography while he was still in law school.  For the last 5 of those years the Obamas were making well over $200,000.  For two of them they were making enough to be the "super rich" that aren't paying their fair-share of taxes.  There are two possibilities here, neither of them very favorable for the President. The first is that despite being "super rich" (by his own definition) he really didn't have enough money to pay off his student loans.  That eviscerates his argument (which he has been continuing to make at these taxpayer funded campaign speechs at Universities) that those over $250,000 are just throwing away money and need to be giving more in taxes.  The other is that, despite having an abundance of discretionary income, he chose not to pay off student loans because the opportunity cost favored keeping them.  I suspect this what really happened.  He had a student loan at around 6% (this is before the rates were lowered in 2008) and he could make more money on that money than he was paying in interest (and he certainly couldn't get a loan that low) so he didn't see any point in aggressively paying it off the way you would, say, a credit card.  This destroys his argument for artificially cutting the rate in half from what was already so cheap he chose to keep it around when he didn't have to.

The third, and most disturbing, interesting thing is the games the Republicans are playing here. When the Democrats created Obamacare they took some of the easier-to-cut sections of Medicare and slashed them to make the budget work.  I made the argument at the time that this was like renegotiating a mortgage that was going to bankrupt me and then turning around and spending the "savings" on credit cards.  This is exactly what Boehner wants to do here.  The Republicans have been arguing since it passed that we can't afford Obamacare.  And we can't.  Now we have a Republican Presidential candidate who has committed to dropping Obamacare completely, a Supreme Court case that many people consider likely to throw the entire bid out as unconstitutional, and a Republican Congress that says it's still unconstitutional and we can't afford it, but we can cut some of the money we don't have out of Obamacare and use it to pay for another bad idea.  Obamacare is a bad idea, and we ought to throw it out, but "saving" money by not funding certain care items while keeping the rest of the restrictions and regulations and then spending the "savings" on another bad idea is an even worse idea.

There are a bunch of other issues particular to the way student loans are subsidized and how this contributes to the rapid inflation of education costs, the fact that through this program a 25 year-old plumber gets to pay the bank 6% for the loan on his truck and tools and subsidize the 3.4% (higher risk profile) loan for the education of a 25 year-old lawyer, or the question of why the Federal government is involved in education funding at all, but I'm honestly not as interested in the standard issues with student loans as the politics of the rhetoric itself.

Tuesday, April 17, 2012


The internal effects of a mutable policy are still more calamitous. It poisons the blessing of liberty itself. It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

Another effect of public instability is the unreasonable advantage it gives to the sagacious, the enterprising, and the moneyed few over the industrious and uniformed mass of the people. Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens. This is a state of things in which it may be said with some truth that laws are made for the few, not for the many.

In another point of view, great injury results from an unstable government. The want of confidence in the public councils damps every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements. What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government? In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy.

But the most deplorable effect of all is that diminution of attachment and reverence which steals into the hearts of the people, towards a political system which betrays so many marks of infirmity, and disappoints so many of their flattering hopes. No government, any more than an individual, will long be respected without being truly respectable; nor be truly respectable, without possessing a certain portion of order and stability.

-- Federalist 62 (emphasis added)