Thursday, January 28, 2010

Not thinking through the consequences...

I've seen some things on President Obama's plan to nationalize student loans, and it really makes me thankful that he doesn't often flesh out his proposals. In a nutshell, he proposes to:

1. Eliminate bankers from the student loan process--likely consequences here.

2. Limit repayment to 10% of income, discouraging graduates from entering fields with good pay.

3. Forgive loans after a period of time, no matter what the balance, discouraging graduates from seeking good-paying jobs in order to get out of debt.

4. Forgive loans for anyone working for the government, discouraging graduates from producing useful goods and services in the private sector.

As if we need more human leeches with graduate degrees in gender and ethnic studies working for the EEOC. Yeesh.


pentamom said...

I agree with 1 and 4, but if the payoff limits are not progressive to income, I can't imagine too many people saying, "Gee, I don't want to make too much money, because I'd have to pay more on my loans even though I'd still have more left over."

I realize that it's theoretically a pernicious incentive, but I have my doubts about it working in practice.

Nonetheless, I disapprove of the plan on principle anyway.

Bike Bubba said...

Consider the shift in motives;

Today: you owe the full payment no matter what your income, and any raise you get is 100% yours. Prepayment comes off the principal and reduces your interest.

Obama plan: you owe only 10% of your income, and if you get a raise, you may get only 90% of it after taxes. Manage to avoid payment for a certain time and it's forgiven.

It's not rocket science to figure out that some will use that as part of their reason to avoid working hard, getting a meaningful degree, and paying off their debts.