Published October 26, 2011
Obama Taps Taxpayers For Student Stimulus; Romney’s Nuance Doesn’t Thrill on Hill
Obama Looks to Wring Stimulus From Saturated Student Loan Market
-- Estimated amount of student loan debt owed by Americans.
In keeping with his new campaign theme of “we can’t wait,” President Obama today will roll out a plan to put more money in the pockets of some of the nation’s 36 million student loan recipients.
Obama has broad latitude in this area – certainly broader than the first two parts of his western campaign trip, underwater mortgages and subsidies for hiring veterans – because one of his early legislative initiatives was to have the federal government take over the student lending business in America.
Obama argued for the measure in 2009 as a cost-savings initiative, saying that the old system of privately issued, government secured loans reduced the amount of available money for needy students and also prevented the feds from making the system more efficient.
But Obama is now seeking to use that new power to obtain a taxpayer-financed stimulus that Congress won’t approve. The idea is to cap student loan repayment rates at 10 percent of a debtor’s income that goes above the poverty line, and then limiting the life of a loan to 20 years.
Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure.
Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.
The president will also allow student debtors to refinance and consolidate loans on more favorable terms, further decreasing the payoff for taxpayers.
Obama’s move comes at a moment when many economists are warning of a college debt bubble that is distorting college tuition rates and threatening to further damage credit markets. The president’s move is intended to make college more affordable for more people, which will, in turn allow universities to jack up their rates.
As in the housing bubble, cheap credit on easy terms increases the amount of money chasing the product (in this case a diploma) allowing schools to increase prices. This inflation makes it harder for middle-class families to afford paying their own tuitions, driving them into the government financing program, which, you guessed it, drives up costs further still.
Obama’s goals, aside from continuing to encourage young people to spurn the private sector in favor of service jobs, is to try to juice the economy. Those who participate in the program could see their monthly incomes rise by hundreds of dollars, thereby increasing the money they have to buy stuff and try to juice the economy.
A more modest program already in place has been a bit of a bust with only 1.25 percent of debtors signing up, likely because of the unpleasant notion of additional paperwork and government reporting hassles. But by sweetening the deal and putting a big PR push behind it, Obama is betting that he can get people spending in time to help shore up his re-election chances.
The best part for Obama is that he can obligate the Treasury without Congressional approval thanks to the passage of what he described as a cost-saving measure in 2009.
Update: White House Responds
A White House official responds to Power Play, saying that the president's student loan action will "almost certainly reduce" deficit spending because of the savings the administration says will be achieved by a 2010 federal college lending takeover and what the administration believes will be a lower rate of default among student debtors due to lower lending rates.
The official also stressed that the loan program is only an expedited version of the forgiveness and refinancing rules enacted by President Obama and congressional Democrats in 2010. The original law calls for the end of participants’ obligations after 25 years and caps payments at 15 percent of a debtor’s income above the poverty line.
That legislation, passed in the Senate as a rider on the president’s health law in order to use the reconciliation process that requires 50 votes instead of the usual 60 votes due to bipartisan opposition, was promised to reduce federal outlays by $68 billion over the next decade, monies which were earmarked for cost savings and an expansion of the Pell Grant program for needy college students. The funds for the stimulus endeavor announced by the president in Denver on Wednesday are said to be drawn from that cache.
Risk-Averse Romney Frustrates Hill GOPers
"I am not speaking about the particular ballot issues. Those are up to the people of Ohio. But I certainly support the efforts of the governor to reign in the scale of government. I am not terribly familiar with the two ballot initiatives. But I am certainly supportive of the Republican Party's efforts here."
-- Former Massachusetts Gov. Mitt Romney walking back his prior support of a new Ohio law that restricts the collective bargaining power of state worker unions.
While former Massachusetts Gov. Mitt Romney has done a better job of wooing Capitol Hill Republicans than his fellow GOP 2012 contenders, there’s still a resistance to the man who has been the party’s frontrunner for most of the past three years.
Romney heads to the Hill today to try to corral supporters from two groups – more moderate members who are natural fits for Romney and a few conservatives to vouch for a nominee they can accept as the inevitable choice.
It’s been a hard sell.
“If he’s inevitable, I don’t know why he needs my help,” one swing-state Republican House member told Power Play. “I’ll endorse the nominee, whoever that is.”
Members and staffers agree that while Romney looks increasingly unbeatable since the party’s conservative base remains divided, there’s little to be gained from jumping on board early.
“If you endorse [Romney], you upset the base at home and don’t really get anything in return,” a former senior Senate staffer who now works as a GOP campaign consultant told Power Play. “This is not one where you want to be seen as ahead of the curve.”
A closet Romney backer in Congress who said she is soon to announce her support publicly told Power Play that the frontrunner would continue to roll out a series of high-profile endorsements in the days and weeks to come.
“We respect results and we respect experience,” he said. “We also know that it will take practical solutions to do the job.”
Romney made his task more complicated on Tuesday when he flinched when questioned about a pair of state ballot initiatives while visiting a Republican campaign office where they were working hard to pull out wins on the referenda.
Romney issued a statement this summer in support of the law pushed by Gov. John Kasich to roll back the collective bargaining powers of state worker unions, but when asked in person about the union-led effort to repeal the law through a plebiscite, Romney was agnostic on the subject deferring to the will of the voters.
Many have attributed this to Romney’s unwillingness to be attached to the losing side of the issue since polls show lopsided support for the union-backed repeal measure. Others have speculated that Romney was looking to avoid connection to the anti-government union movement inside the GOP, an association that could be damaging to a candidate whom Democrats are already painting as a plutocrat uninterested in the plight of blue-collar workers.
More likely, though, it was the other issue on the ballot: A constitutional amendment that would shield Ohioans from the key provision of President Obama’s health law that requires all Americans to either purchase private insurance or be enrolled in a government program.
Romney, who pioneered the concept of mandatory insurance in Massachusetts, can hardly speak in favor of the Ohio amendment, which looks likely to pass. He has held that states should be allowed to compel citizens to buy insurance, but not the federal government and that each state should do as it wishes on the subject.
If Romney expressed an opinion on the union rule, he would be hard pressed to then express agnosticism on the mandatory insurance provision. By ducking the question, Romney protected himself from having to talk about his health law and, perhaps, avoided an even bigger embarrassment than what followed.
Romney’s answer was therefore technically the politically correct one since it traded a small embarrassment for a larger gaffe, but it is exactly that kind of calculation that continues to leave GOP activists cold. Romney avoids the gaffes that have plagued Herman Cain, Rick Perry and even occasionally Newt Gingrich.
By giving such careful answers, Romney has been able to maintain his quarter of the GOP electorate, but hasn’t been able to rebut the central critique of his candidacy: ideological inconstancy.
And Now, A Word From Charles
“I think this is the beginning of his re-launch and his last chance for a re-launch. What's surprising is that he didn't start with this. He thought he could start the campaign defining himself as a guy that created jobs in Texas. That is not enough. That is a bit of a narrative, but it's not a program.
When Reagan ran in 1980 he had a program. He wasn't only running against stagnation and Carter and malaise, he ran on a guy who is going to the Kemp-Roth tax cuts, which were radical, one-third cut, which was a major cut.”