Although it received little press attention, the federal government effectively seized control of all college student loans as part of the Affordable Care Act (i.e., Obamacare). The government intervention in higher education has had just as abysmal a record as interventions in health care, and it has been made even worse by President Obama’s plan to implement new federal student loan rules.
Obama intends to issue executive orders that will allow borrowers to consolidate loans, reduce borrowers’ payments, and shorten the current debt forgiveness time limit. This may sound attractive to borrowers, but it is essentially a government bailout for colleges and universities that will do little to help students.
These new rules encourage prospective college students to seek even larger loans since there will be less pressure to pay them back. And larger loans can only lead to higher tuition costs. The new rules do nothing to compel colleges and universities to cut their bloated budgets. Thus, institutions of higher learning will continue their business as usual, just like the corporations benefiting from government bailouts.
Borrowers will save less than $10 per month under these new rules. And debts that are forgiven do not disappear; they simply get foisted upon the taxpayers in the form of higher tuition costs and loan interest rates.
College loans have now exceeded credit cards as the largest debt source in America. These new rules could unleash a frightening scenario: if students have accrued nearly $1 trillion in debt with the understanding that they would have to pay it back, how much will they accrue if they know they don’t have to pay it back?
This is yet another unconstitutional intervention into an industry that government should have no jurisdiction over. And the intervention could have dire consequences. The student loan business is a growing bubble that, like all past economic bubbles, will eventually burst and potentially cause a greater economic crisis than ever before.