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The Student Loan Distraction

On July 1, interest rates on federal Stafford student loans are set to double from 3.4% to 6.8%. To Barack Obama and the Democrats, this is a big deal that they want to focus on. Democrats have long been ideologically committed to a policy of sending more people to college for longer periods of time, results and cost be damned. If, in some small way, the extension of lower rates on Stafford loans will help that goal, President Obama will push for it. Sadly, the Republicans have followed suit and are also pushing through an extension for the lower student loan rates.

It turns out that this is only a very small cut. Eric Pianin writes for the Fiscal Times that the student loan bill won't actually help most students.

Only 3 percent of the roughly $1 trillion of overall outstanding student debt will carry the low interest rate extension this year.

[T]he bargain basement 3.4 percent interest rate currently applies to only about a third of students holding or seeking subsidized federal loans. the borrower would save a maximum of $800 to $1,000 over the life of the loan, assuming he borrows the $5,500 maximum available to a third or fourth-year student. That works out to a savings of about $9 a month. The interest savings would be even less for first-year students who could borrow no more than $3,500 at the lower interest rate.

The lower rates on Stafford loans are not going to affect college attendance in any significant way. The lower rates are not going to alleviate the trillion-dollar student loan debt bubble. And the lower rates aren't going to help people who are actually in college right now or planning on attending soon.


It's going to cost taxpayers $6 billion, to little or no effect.

In this month's issue of Townhall Magazine, Dan Doherty and I wrote about the Democrats' fetishization of the student loan issue. President Obama has turned it into a campaign issue purely as a way to reach out to disaffected young voters who turned out for him in record numbers in 2008.

The "Hope and Change" motto that President Obama ran on might have inadvertently saddled him with a base that believed he was going to upend the entire political system. As a result, he was judged by everything he didn't do, not everything he did. In particular, recent college grads saddled with student loan debt and a struggling economy blamed the President.

Youth voters turning their backs on President Obama could result in a national popular vote loss of up to 2% for the President. That's not enough on its own to undo the margin that existed in 2008 but, coupled with a broader movement, could spell the end of his tenure in the White House. Obama doesn't want to lose the power that the youth vote brought him in 2008.


If young people think that President Obama is doing something to help them, they might come out again for him. This policy, however much the Democrats are playing it up as important, is a massive waste of money that will do little to alleviate young peoples' struggles.

For more, check out our Townhall Magazine piece, or my post yesterday on why this is one of the worst policies imaginable.

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