Amid much fanfare this week, President Barack Obama unveiled a feel-good proposal at the expense of good or meaningful policy. Obama signed an executive order that will expand a program limiting the amount borrowers must pay on student loans. “We believe that in America, no hardworking young person should be priced out of a higher education,” the president said.
But while student debt is an important and growing issue, Obama’s executive order does little to make college more affordable for hardworking young people. Consider: The proposal isn’t new — it’s an expansion of an existing program to include people who took out loans prior to October 2007; only 1.8 million borrowers of about 17 million who qualify have enrolled in the previous program; and the plan targets a narrow percentage of the roughly 40 million people who have student loan debt. The mechanics, according to CNN, are that borrowers who sign up for the program will have their monthly payments capped at 10 percent of their income that is above 150 percent of the poverty line.
That’s not a bad deal. Then again, government-backed student loans long have been one of the most affordable investments available to consumers, with interest rates much lower than typical lending. In spite of that, outstanding education debt has reached about $1.2 trillion, and graduates from the Class of 2012 who took out loans for bachelors’ degrees owed an average of $29,500. If that is the case, perhaps a different tack is in order.
On the same day Obama was rolling out his executive order, a gathering was held in Seattle to celebrate the success of the Washington State Opportunity Scholarship, which provides up to $22,500 to low- and middle-income students pursuing high-demand STEM degrees (science, technology, engineering, math) in the state. The program is a public-private partnership driven by money from taxpayers and grants from Boeing and Microsoft. House Speaker Frank Chopp, D-Seattle, said: “Washington state is among the top in the nation for state-funded financial aid. But we just felt that it was important to challenge the private sector to also contribute money, as well.” Most important, the program is market driven. High-tech companies need well-trained workers in specific fields, so the state provides money to help train them.
