Tuesday, June 10, 2014

Student Loans: Poster Child for Government Failure

Conservatives like to account for President Obama's serial illegalities by saying that he hates America -- or hates something.

But there is a simpler explanation.  The federal government is so screwed up that it is impossible to deal with its messes without illegal administrative action.  Because by the time that Congress could get around to fixing the problems, they would have got worse, much worse.

The current flap over student loans is a case in point. President Obama has signed an executive order limiting payments by student borrowers. Writes Amanda Paulson:
The memorandum he signed would, among other things, allow more borrowers to cap their student loan payments at 10 percent of their income. He also directed the government to renegotiate its contracts with federal loan servicers like Sallie Mae to improve services for borrowers.
After decades of subsidizing universities and offering university student grants and loans we have got to the point where the current generation of students is so indebted that it can't afford to get married and buy houses.  So the government proposes to forgive the loans that students have been encouraged to take out to finance their education.

No surprise, of course.  If you subsidize something you are going to get more of it. And colleges educating the subsidized students are going to increase their fees and their costs, because they can.  And the increasing cost of a college education is going to encourage politicians to "do something" to ease the difficulties that students experience in paying for college and then paying off their loans.

So President Obama finds that he has to act and "do something", because otherwise his party is going to get buried at the next election.

I've written that it's madness for students to take out loans to finance education because the whole point of a loan is to anticipate income.  In general in the loan business, if you can't show the income and you can't show proper collateral then you don't get the loan.  What student can anticipate their income for the next 20 years at age 18?  And then it's cruel to convert that loan into an crook equity deal where the government gets to take up to 10 percent of your income.  Talk about the road to serfdom.

So the current student loan system stinks, in theory and in practice.

Now President Obama, just in time for the November elections, proposes to limit student loan repayments to 10 percent of income.  He's already determined that students should have their loans forgiven after 20 years, or 10 years if they work for government.

(Yeah.  Where's the justice in that, given that government workers make 50-100 percent more than private sector workers for the same job?)

But the bigger issue is how to stop the government doing stupid things like subsidizing colleges and students and then compounding the error when things go south.  The Wall Street Journal reviews a book by a retired Yale Law professor Peter H. Schuck today: "Why Government Fails So Often."
To be successful, [Schuck] argues, a public policy has to get six things right: incentives, instruments, information, adaptability, credibility and management. The federal government tends to be bad at all of these.
Well yeah, whatever all that pompous stuff actually means.  Conservatives would just say that it's impossible for government to do these six things, for any program.  Because Hayek.

But I am a radical simplifier, and I think it all boils down to this.  Government is force and the only thing the government knows how to do is declare war and bash its enemy over the head.  If it isn't a war then government shouldn't be doing it.

On that view it is obvious that the government has no business in the student loan business.  Who or what, after all, is it fighting against?  Ignorance?  Poverty?  Greedy bankers?  Pusillanimous college administrators?  Early marriage?  Big families?

Well, the current student loan debt is said to be up there are $1 trillion.  It is clear that things are going to get worse before they get better.

And there's an even bigger question than the incompetence of government and President's illegal government by phone and pen.  It is this.

When are liberals going to cry uncle on the utter failure of big government, this metastasizing cancer on the American body politic?

Exactly.  They will cry uncle when big government really starts to bite into liberal lives.  And they will blame the Koch brothers.  Or the greedy bankers.  Or the racist white working class.  Or corporate greed.

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