Unintended Consequences Of Obama's Student Loan Policies

Tyler Durden's picture

Submitted by F.F.Wiley of Cyniconomics blog,

So this week, ...

His new policies on student loans include greater access to both payment reductions and loan forgiveness.

And, needless to say, his Rose Garden speech oozed election year politics.

As the Boston Herald put it: “This is nothing more than politics as official policy … the president’s shout-out to U.S. Rep. John Tierney, a vulnerable Democrat, at yesterday’s White House ceremony was just one of the clues.”

To be clear, student debt has become a huge problem that demands attention. Alongside other challenges, such as finding a decent job in a stagnant economy, student borrowers face daunting payment burdens that they’re failing to meet at record rates.

But the problem requires more than just a political instinct to bail out a wide swath of the voting public.

In a better world, policymakers would take a cold, hard look at the effects of federally-funded student loan programs, including the good and the bad. Here are a few such observations that you’re unlikely to hear from your president:


1)  Student loans are a fiscal time bomb, notwithstanding the government’s ridiculously flawed cost estimates, which Obama chose not to update despite this week’s policy changes. Official cost estimates ignore the near certainty of continued bailouts, while relying on shoddy accounting practices that you wouldn’t get away with in the private sector. In an editorial published after Obama’s latest announcements, the Wall Street Journal wrote:

Democrats claim to care about inequality, but kids who don’t go to college are in even worse economic shape than college kids, with even higher unemployment rates. Yet when the cost of defaults and debt forgiveness finally comes due, it will be paid by all taxpayers, including those who didn’t go to college. So the townies with jobs will end up paying more in taxes to give former college kids and grad students a break on their student debt.

2)  Skyrocketing college tuition costs are explained partly by extensive public subsidies to higher education, including past enhancements to federal student loan programs that all but eliminated private lenders. Ample government support allows universities the kind of pricing power that other industries only dream of. Obama characteristically framed his preferred policies as a choice between “lower tax bills for millionaires or lower student loan bills for the middle class.” To see the absurdity in this bit of rhetoric, you only need to look up the generous incomes and perks enjoyed by administrators and senior faculty at your local university. Arnold Kling put it this way:

The right way to think about student loans is that they are a gift from taxpayers to the higher education industry, both non-profit and for-profit. Most of the benefit goes to those who work in that industry, not to students. Most of the risk is borne by students and taxpayers, not by those who work in the industry.

3)  Public support for higher education helps to create unnecessary barriers in many fields where advanced degrees are now required credentials. Economics – a frequent topic for this blog – is just one example of a profession where “entry” requires indoctrination in methods that are useless if your goal is to actually understand your subject (rather than maximizing your publication count). Neal McCluskey argues that “cheap college has almost certainly fueled credential inflation, not major increases in knowledge or skills.”

4)  McCluskey’s position is supported by a recent study showing that borrowing for graduate school explains much of the increase in student loan issuance since 2004. The WSJ attributes the surge in graduate school loans partly to “an open spigot of government credit,” while quoting the study’s author, Jason Delisle:

Graduate schools have essentially found a way to capture more of someone’s future income and future spending than what would probably occur if we had some sort of underwriting standards and loan limits.

5)  Data shows that substantial portions of student loan proceeds are used for rent, bills and lifestyle expenses for borrowers with questionable ability to meet repayment obligations. Some of these “students” appear to have little intention of actually putting in the class and study time to obtain a degree. Again from the WSJ: “Even when schools suspect students are over-borrowing, they are restricted by federal law and Education Department policy from denying funds.”

6)  Moreover, reckless decisions about how much to borrow are not only enabled but encouraged by government policies. Back to McCluskey:

In the name of helping them, federal politicians, and many other people, massively oversell higher education to the detriment of students. Perhaps as much as half of people who enter college don’t finisha third of people with a bachelor’s degree are in jobs not requiring the credential [and]; underemployment is even worse for graduate-degree holders…

7)  Special provisions for public sector employees, who can achieve loan forgiveness after only 10 repayment years compared to 20 for those in the private sector, are arguably the most heinous of all student loan policies. They are the political equivalent of a flagrant foul on the producing classes. Those who choose to put their efforts to the test of the market are penalized, to the benefit of public “servants” who live comfortably off the taxpayer without any accountability to the market. Such public sector perks can only be explained by the hubris, sense of entitlement and government-run-amok cronyism of the political class.

. . .

Now, none of our observations and editorial comments are meant to deny that there are many student loan success stories.

We’ve deliberately focused on the risks of federally-funded student loan programs, as these are too often swept under the carpet.

Problems with student loan programs are deep-rooted – thanks mostly to the government’s domination of the market – and were only worsened by Obama’s actions this week.

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simplejack's picture




why do the government and big companies always want people to take on more debt?

nuclearsquid's picture

You're new.  Give it a few more days of reading and you will understand.


simplejack's picture



why does the government always bail out the companies that have created too much bad debt?  


Shouldn't those companies go bankrupt?


isn't transfering bad company debt to the government balance sheet called......  socialism?


or is it facsism?



0b1knob's picture

< Intended.

< Unintended.

Moski's picture

Declaring lack of intent on another's part is an assertion impossible to prove yet it's done repeatedly.


I find it vexing.

Save_America1st's picture

who in the hell thinks any of this shit is "unintended"???  This is exacly and explicitely fucking intended.  They're crashing the system.  It's the Cloward and Piven strategy, and it's exactly what Saul Alinsky and Bill Ayers taught obama was the way to collapse America in order to take it over.  The fucking Marxists have been trying to collapse America from within for over 100 years. 

Unintended???  Grow the fuck up if you think any of the shit that's going on with the monetary system, the border insurgency, the record high unemployment and welfare, etc. etc. etc. is "unintended".  Bullshit.  It's all part of the fucking plan, bitchez.

Got supplies?  Got extra water filtration, food storage, lead/copper and lead delivery systems, power supplies, medical supplies, camping, hunting, fishing supplies?  Extra cash outside of the banking system and a stack of PM's???  A bug-out and defense plan?

If not, then you better start gettin' to it now, because absolutely NONE of any of this is going to get turned around and fixed before it all collapses.  Sorry, but there's just too much being thrown into the system at this point.  Even if one thing is turned around it's still too late and we're going to collapse under the weight of everything else. 

Unless the military and the civilian population absolutely takes D.C. out and the Fed Reserve.  Arrests all the criminal politicians and banksters and forces an end to all this shit.  Then if that actually happened and we installed a Constitutional government who would run things properly we'd still be facing a collapse economically because there's no fucking way to get out from under this debt and the derivatives that will force interest rates higher and a total default.

All this shit has to happen eventually...there's no way to stop it and no way around it.  Kicking the can won't last for much longer so either way we are going to collapse. 

The thing is to be preparing for it and to make sure the good guys take power and control over the recovery after the collapse.  We can't let the bad guys solidify their power and control over what's left after the collapse or we're all done for.  It'll look like Syria and Iraq in all our major cities.

We need to take over the government by force if necessary with the good guys in our military forces.  We need to put all the government on trial for treason and make serious examples out of many of them.  Yes I mean hangings or life in prison.  Same with the banksters and the Fed.  It all has to be stopped like that and we have to take over immediately so that we control as much of the outcome as possible across the nation and provide security to fight the chaos that will most definitely occur.

It might take several years to fight this out and get things back on track.  But if it's not done this way then ultimately the bad guys will control whatever happens after the collapse.  And that means FEMA camps, executions by the multiple millions (See Larry Grathwohl video here), foreign Mercs and U.N. troops occupying our streets just like out of Red Dawn, because they will need foreigners when our military refuses to support the takeover.  Totaly violent tyranny Soviet Union style.

Can't allow that to happen on American soil folks. 

TVP's picture

Thanks for that tome of a comment.

While I admire your will to fight, and your patriotism, this takeover will be different.

Tyrants have learned that the resistance often fights with such ferocity that they will overwhelm the government.  The solution?  Take out all resistance BEFOREHAND.  

Anyone and everyone who can resist will be labeled a "terrorist sympathizer", disarmed, rounded up and put into FEMA camps right about the time that the lights go out (EMP or cyber-attack).  

Don't underestimate how long this can drag out, either...they can keep the ponzi running for years and years.  Unless this whole China re-hypothication thing turns out to be real, and there's no way to paper over it. 

But the bankers always find a way to paper-over things and cover them up.  The ability to print infinite currency grants a power no one should have.

0b1knob's picture

200 American contractors surrounded and fighting for their lives at Balad airfield.  Iraqis dropped their weapons and ran when the Taliban showed up.


Obama does nothing.   Based on the Bergdahl exchange they should get 1000 Taliban released and $500 million ransom for them.  



RafterManFMJ's picture

You bought the ticket.

Now take the ride.

Radical Marijuana's picture

well, "save_American1st," you sort of blame the "fucking Marxists." It ain't the Marxists, it is the banksters who funded messianic Marxism to become a significant social movement, who are also using false labels like "socialism" to conceal what is actually going on, which are systems of lies, backed by violence, thereby transferring "ownership" to smaller and smaller minorities, which is actually the diametrical opposite to the stated goals of messianic Marxism, or socialism.

You appear to be a glorious day dreamer: "We need to put all the government on trial for treason and make serious examples out of many of them.  Yes I mean hangings or life in prison.  Same with the banksters and the Fed." No doubt you are right about the facts that the government of the USA has become almost totally treasonous, and the main causes have been the banksters, however, you do not seem to be honest with yourself enough to admit you are merely day dreaming.

Tragically, I think that the links to this guy tend to predict the more probable dismal futures for "America" being gradually ground down, at a faster and faster rate towards the end:


In his comment about his video about "young revolutionaries" and "young counterrevolutionaries" Pollock stated, "Generally, there will not be a revolution or counter revolution in the US; the more likely outcomes include breakdown, break-apart and collapse.?"

That is what I am expecting too. Anything else would take a series of technological and political miracles.

So sorry, but I think that the "America" you want to save is so terminally sick that it is already practically dead. The about 1% that are somewhat aware of those social facts and are attempting to prepare are outnumbered 100 to 1 by those who are still too clueless to be aware of how clueless they are.

I guess I sort of nostalgically wish that I could still share in as much of the irrational hopes that you still appear to be able to hold on to. However, IF I was a young person today, I would be attempting to maximize my student loans, to enjoy life while I could, because I would not have any hope for the future.

JRobby's picture

Intend Obsolescence Built Into The System

J Cantrell

Eddy Vluggen's picture

..or is it communism?

Perhaps you should by a dictionary before throwing words you don't understand. Throwing money after something that's bankrupt isn't part of ANY political ideology.

Brilliant how so many people are convinced that socialism is evil, without being able to explain why.

simplejack's picture



does it matter which 'ism' it is when the real problem is mis alocated capital?


why would anyone want a system that favors the mis alocation of real working capital?

Eddy Vluggen's picture

Yes, great argumentation.

<grabs coat>

lordylord's picture

Re Eddy Vluggen

There is nothing wrong with voluntary socialism.  The trouble is that all socialist systems throughout history has required that a gun be pointed at the producers for the benefit of the takers.  The major takers being government, elite bankers, and the well-connected.  Meanwhile the producers and those dependent on goverment starve to death.  Great system, huh.

Brilliant how so many people are convinced that socialism is beneficial, without being able to look at history or use common sense.

Eddy Vluggen's picture

There is nothing wrong with voluntary socialism.

Look up the word "social". It has nothing to do with the redistribution of wealth.

TVP's picture

Look up the word "troll". 

I believe your username appears as an example.  

Eddy Vluggen's picture

Whoaah; not even trying to reach for arguments, just straight ad-hominem :D

Anusocracy's picture

Because socialists, like fascists, don't have a concept of other people's property.

Like animals in nature.

lordylord's picture

"Like animals in nature."

Even animals respect each other's territory.  Socialists are less than animals.

Eddy Vluggen's picture

Socialists are less than animals.

..and there goes I thinking all humans are equals and brothers, since they're stuck on the same ball o' mud. Does this mean that I no longer have to behave human?



Anusocracy's picture

If, as you state, you "have to behave human", then you're not human.

You're a domesticated animal.

Eddy Vluggen's picture

You're confused with communism; which does respect property.

Anusocracy's picture

Not an individual's.

Just the property of the humant colony.

Moski's picture

It's evil because it does not respect individual rights, especially the right to property, without which rights are meaningless.  If you can't keep what you've earned it means someone has a claim on every berry you pick or fish you catch.  That claim is the evil lie.  That is Evil.

Eddy Vluggen's picture

"It's evil because it does not respect individual rights"

..where does it say that it does not respect individual rights? Have you ever been to Amsterdam?


It was SOCIAL.


Have you ever compared different forms of state? Can you actually tell the difference between a communism, fascism and socialism?


It is easy to mislead idiots. Education is the only defense.

Blues Traveler's picture

Ed, Dont be a daft punk, or least not in the octagon of minds of critical thinking people.  Anything that deviates from putting the rights/liberties/freedom/property rights/pursuit of happiness of the individual ahead of the people or government, then it falls into one of the "ism'. 

 Take your points/discussion to its repeated historical proven failed conclusion, then you will find us.


SeattleBruce's picture

"Throwing money after something that's bankrupt isn't part of ANY political ideology...Brilliant how so many people are convinced that socialism is evil, without being able to explain why."

As we know, political cover is purchased and given to TPTB.  But frankly communism, as generally applied in this world has been and is evil.  But so are the two political parties in the US that give cover to the MIC as SOP, just not as directly evil as genocide, imo.  Promoting war, for national, corporate and personal economic gain though is still pretty evil, imho, and when it becomes institutionalized, and part of national economy and policy to the point where it CANNOT be questioned, all the moreso.  While we're not engaged in ethnic cleansing or genocide like Stalin and Pol Pot, et al were, we have done plenty of unnecessary, institutionally sanctioned killing/war simply because it 'seemed' to be in the national (economic) interest.  This is most definitely a BAD reason to conduct war (if there are ever good reasons (just war discussion)).

sessinpo's picture

Eddy Vluggen    ..or is it communism?

Perhaps you should by a dictionary before throwing words you don't understand. Throwing money after something that's bankrupt isn't part of ANY political ideology.

Brilliant how so many people are convinced that socialism is evil, without being able to explain why.


A fine example of that you just made.

StychoKiller's picture

Try to read "The Fatal Conceit", mathematics don't lie, politicians do!

armageddon addahere's picture

National Socialism = Fascism

International Socialism = Communism

nuclearsquid's picture

You're new.  Give it a few more days of reading and you will understand.


nuclearsquid's picture

You're new.  Give it a few more days of reading and you will understand.

-wow- either zerohedge really liked my comment, or the NSA is trolling hard today.


pods's picture

Just a tri-burst, no worries.


tempo's picture

My grandson finished 2 years of pot smoking and sexing at a major University taking minimum courses and has no declared major. He is working 15 hours/week this summer at a city sports camp at minimum wage. He is calling all relatives and friends asking for co-signers so he can continue his "passions" and dreams (pot smoking, sexing and not working). Anyone interested?

RafterManFMJ's picture


Spoke with a gent at work a few weeks ago...he is co-signing for his daughter's schooling...for a 6 or 7 year degree in Pharmacy.  He could tell by my expression what I thought of the idea, and my mind reeled as I strained to find something positive to say. Finally I came up with, "Well, that's a real degree and there should be some demand for it."

Last week he clocked 108 hours at work.

Itchy and Scratchy's picture

evrybuddy shud b able to git a subsadized Libral Arts edjacshun jus like me sew they no the bess place where to git their food stamps an disabilty forms an EBT iTunes cards if dey knead dum

RafterManFMJ's picture

This guy was a virtuel classmate of mine! How have ben you Itchie? Find work yet? Scene that new truke you bot with the 96 month loan! Sweeeet! You goin to the virtuel Univercity of PHoenicks reonion on sepember 19? Ill see youre avatar thier I huppe!

Puncher75's picture

Obama is an Alinskiite!  Overwhelm the system on ALL fronts and create a Socialist "utopia" from the ruins.  This is who this ASSHOLE idiot is!!  Cloward and Piven.  Wake the eff up!!

More_sellers_than_buyers's picture

If I hear the words "let me be clear" one more time I'm going to vomit...President, bloggers, even news reporters are saying this shit now.  WTF

kchrisc's picture

If you have a student-loan, quit paying on it. Get a deferment, or what ever, but just stop.

You won't be able to pay on it soon anyhow and they stole the "loan money" they loaned you anyways via fraudulent-reserve banking and counterfeiting.

The funds are better invested in gold, silver, steel and lead.

And while you are at it, look at others debt you can stop paying on.


The most powerful weapon the American people have is Rejection.

The system of fraud and theft that has been built up upon the backs of the American people is dependent upon our backs. Withdrew our backs, and the whole thing collapses. This is our greatest weapon.

Quit Paying--put it into food, steel and lead, and precious metals, etc. They stole what ever "debt money" they loaned you in the first place via fraudulent-reserve banking and soon you won't be able to pay them anyways, so just stop now.

Quit Obeying--If they are in violation of the Constitution then they are criminals and not legitimate.

Quit Playing--Quit being a tool for them to use.

The Four Rs
Rejection: Quit paying, quit obeying, quit playing
Revolution: It is inevitable, so prepare, as they are.
Retribution: The guilty must answer for their crimes against the American people and the Constitution.
Restoration: Restore the American people, country and Constitutional republic.

Morla's picture

"But the proles, if only they could somehow become conscious of their own strength. would have no need to conspire. They needed only to rise up and shake themselves like a horse shaking off flies. If they chose they could blow the Party to pieces tomorrow morning. Surely sooner or later it must occur to them to do it? And yet ——!" -1984

cynicalskeptic's picture

Easy to say but you're giving them an excuse to lock you up....... and at some point ANY excuse WILL be used.

Dr. Engali's picture

"To be clear, student debt has become a huge problem that demands attention."

No it doesn't damn it! Every time there is "attention" given to a problem it leads to a bail out and another fucking problem. Let the chips fall where they fucking may!

NidStyles's picture

The only attention I see with that loan sector is that it's not possible to declare bankruptcy. That leaves bad debt out there to stagnate and created issues with pricing signals. 


Bankruptcy is a good thing, and screw Bush for making it illegal. 

ejmoosa's picture

I think the word "unintended" should never be used when referencing the consquences of Obama's actions.

Itchy and Scratchy's picture

The great 'unintended' President!

Ample liquidity's picture

Oh dear, thought WE had a socialist system. To be fair though, this is probably a result of furious lobbying by, as I understand it, quite powerful people that have an interest in seeing the rich get richer and the status quo upheld. So you can feel safe, this is nothing like socialism :) greetings from helsinki btw

disabledvet's picture

These are the same policies the Republicans are pursuing.