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Obama Student Debt Crisis Debunked

Politics: Two new studies, including one by a liberal think tank, debunk White House claims that college debt is “shackling” young adults and discouraging homebuying and other wealth-building.

Investors Business Daily
Jul 24, 2014

President Obama and his regulators have used the charge of widespread financial hardship to justify a crackdown on student loan underwriters and servicers and to push for loan forgiveness. Last month, Obama signed an executive order capping payments on the school debt of millions of student borrowers at 10% of their income, no matter how much they owe. After 10 years, their debt is forgiven if they work for the government or a nonprofit.

Democrats are pushing a bill sponsored by Sen. Elizabeth Warren, D-Mass., and endorsed by Obama that could shift to taxpayers the burden of hundreds of billions more in federal and private student debt. Except their claims aren’t true. Young borrowers with student loans historically are likelier to have mortgages and other loans than other young adults.
And a recent joint study by Dartmouth College and the University of Wisconsin found “little evidence that student loan debt is a ‘major culprit’ of declining home ownership among young adults.”

What’s more, average lifetime incomes of college-educated Americans have more than kept pace with increased debt, the liberal Brookings Institution says.
Analyzing Federal Reserve data, Brookings found that recent hikes in student-loan debt faced by a typical household are more than compensated for with increased earnings over the course of a lifetime. In fact, the increased borrowing would be made up for relatively early in the career of a worker with average earnings — a period of just 2.4 years, says its 27-page report, “Is a Student Loan Crisis on the Horizon?”

Rising student debt, moreover, is “directly attributed to Americans obtaining more education, especially graduate degrees,” since the recession began in 2007. If anything, the monthly burden faced by the typical borrower has eased. That’s because the average repayment term for student loans has lengthened, letting borrowers shoulder increased debt loads without larger monthly payments.“Typical borrowers are no worse off now than they were a generation ago, and borrowers struggling with high debt loads frequently featured in media coverage may not be part of a new or growing phenomenon,” the report said. “The percentage of borrowers with high payment-to-income ratios has not increased over the last 20 years — if anything, it has declined.” Concluded Brookings: “This new evidence suggests that broad-based policies aimed at all student borrowers, either past or current, are likely to be unnecessary and wasteful, given the lack of evidence of widespread financial hardship.” Though students take on more risk when they take on more debt to go to college, risk is quickly rewarded for the average borrower with increased earnings power.

Obama and other Democrats think they can lock in younger voters by turning student loans into federal handouts. These studies should derail their scheme.