Obama Student Loan Proposal Met with Skepticism from House GOP

January 29, 2010 - 3:46 PM
A proposal that President Obama offered during the State of the Union speech to expand a little-known student lending program was met with skepticism by Republicans on the House Education and Labor Committee.

President Barack Obama smiles during a town hall style meeting at the University of Tampa's Bob Martinez Sports Center in Tampa, Fla., the day after his State of the Union speech, Thursday, Jan. 28, 2010. (AP Photo/Charles Dharapak)

(CNSNews.com) – A proposal that President Obama offered during the State of the Union speech to expand a little-known student lending program was met with skepticism by Republicans on the House Education and Labor Committee.
 
Obama said in his speech that Congress should give “another 1 million students” the ability to pay reduced rates on their student loans and have the government forgive any outstanding balances after 20 years – or after 10 years if the person works for the government.
 
“And let’s tell another 1 million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years – and forgiven after 10 years if they choose a career in public service.”
 
The proposal was an oblique reference to the Income Based Repayment (IBR) program, which allows students with government-provided or subsidized loans to repay those loans at reduced rates and have any outstanding balances forgiven. 
 
Created in 2007 – but not implemented until 2009 – the program lets students make regular payments on the loans for 25 years before an outstanding balance will be forgiven, the repayment period is reduced to 15 years if the student goes to work for the government.
 
If a borrower reaches the applicable repayment deadline, the government will forgive the remainder of the loan amount, using taxpayer money to repay the rest of the loan.
 
Obama’s suggestion would amount to an expansion of the program as well as a change in its terms making it more generous to student borrowers – especially those who work for the government. 
 
Rep. John Kline (R-Minn.) reacted negatively to the idea Wednesday night, issuing a statement calling the proposal a “one-size-fits-all government expansion,” which would not help make higher education more affordable.
 
“Unfortunately, when it comes to higher education, the President is offering more of the same one-size-fits-all government expansion the American people have already rejected,” Kline said.
 
The committee’s ranking Republican, Kline linked Obama’s current proposal to one the president offered last year: having the government nationalize the student lending industry.
 
“The proposal to drive the private sector out of student lending is only made worse by an expanded plan to force taxpayers to fund special benefits for government workers and absorb the balance of unpaid student loans,” Kline said. “Making the federal government responsible for a larger share of student debt is likely to do nothing more than exacerbate high college costs.” 
 
Kline said that Obama’s policy should follow his rhetoric and focus on job creation policies, not government expansion.
 
“If the President is serious about job creation, it’s time to abandon the job-killing policies that loom as a constant threat to economic recovery. From a government takeover of health care to massive tax hikes on families and small businesses to the special interest payback known as card check, Democrats have advanced an agenda that breeds economic uncertainty at best and economic calamity at worst,” Kline said.
 
Alexa Marrero, spokesman for Education and Labor Committee Republicans, told CNSNews.com that Obama’s proposal would make the existing program more generous, providing even greater disincentive for students to fully repay their loans and colleges to keep costs down, because colleges know that students may never have to fully repay their loans.
 
“There’s this special benefit going to government employees,” she said. “It’s been around for less than a year, so frankly, we don’t know how effective it is. We don’t know how well it’s going to be used.
 
“Frankly it’s going to be a disincentive for colleges and universities to keep their costs down because you have this third-party-payer system. There are a lot of parallels between what’s happening with health care costs and what’s happening with higher education costs,” Marrero added.
 
“The more we sort of kick the costs down the road and say ‘don’t worry, go ahead and borrow as much as you need because eventually taxpayers are going to come in and pay off [the debt],” she said.
 
Marrero said that the program would create yet another new financial burden for taxpayers without making higher education more affordable.
 
“So we’re really doing nothing to make higher education more affordable, we’re putting an additional burden on the taxpayers, and we’re giving special benefits to government workers.”
 
Marrero noted that the proposal did nothing to help the economy recover from record high unemployment, since it focused its most generous benefits on students who choose government work – a sector which unlike the private sector – doesn’t lose jobs when the economy slows down.
 
“I can’t foresee any way that this proposal actually creates jobs,” she said. “There’s a real concern that something like this just distorts the market and certainly there’s no way to see something like this creating jobs.”