Friday, May 25, 2012

Stupid Is As Stupid Does

This whole issue with raising interest rates on student loans sparked my attention.  Not from the perspective of how unfortunate it would be for the students, but how did something like this come about.  Doubling the interest rate for certain loans doesn’t just happen by itself.  Somebody or some group makes a decision or takes action, especially if it’s a federally funded loan.  So here’s what I found.

Back in 2007, a bill called The College Cost Reduction and Access Act of 2007 was passed by the Congress and signed by President Bush.  The bill had all types of giveaways for funding more grants, provided better access to student loans, added more provisions for loan forgiveness, and temporarily lowered interest rates on certain type of student loans (Stafford Loans).  The bill was funded with $19 billion from reducing subsidies to the lenders of student loans (i.e. the banks).  Many of the funding provisions had limits to how long they would last.  The interest rate reduction was only temporary, until July 2012.  The bill had bipartisan support, but interestingly, then senator Obama  didn't voted for it.  He was absent from voting.

Then along comes Obama care.  Tacked on as an amendment to the Patient Responsibility and Affordable Care Act was a pretty big bill called the Student Aid and Fiscal Responsibility Act of 2009, which had a whole pile of changes to increase funding for student loans.  This bill was paid for by getting the banks out of the student lending business and having the government doing it directly.  This was going to save so much money ($87B over 10 years) that there was enough left over to direct $10B of this savings to reduce the deficit.  While they were busy ramming this thru as an amendment, seems like everyone forgot about that Stafford Loan rate provision stuffed away on that bill from 3 years ago. 

Now the 2012 campaign gears up.   Ever on the look-out for a voting group in need of an election year government give-away, team Obama remembers the Stafford Loan issue and brings it front and center.   “Congress has to keep interest rates on student loans from doubling, and they need to do it now!” said the President.  If it’s so important why didn’t he vote for it back in 2007 and why didn’t the Democrats (when they controlled both houses of Congress) just take some of the extra money from the Obama Care student aid amendment and apply it to the student loan rate issue versus using it to reduce the deficit?  The answer is pretty simple – the people we elect and pay to represent us don't read the bills they’re voting for.

So along come the Democrats who what to extend the loan rate reduction and pay for it by closing a business income tax loophole that lets some business partnerships pay less Medicare tax.  That’s right, the Democrats want to essentially raise Medicare revenue and use that money to pay for a one year extension of the loan rate reduction.  Hello? McFly?  I thought Medicare funding couldn’t keep up with the escalating expenses and now they want to take funding out of it and redirect it to student loans?   The Republicans want to pay for it by taking $6B out of the $1.44T to be spent on Obama care.  This seems a little more reasonable to me.  

But it all could have been avoided back in 2009 when there was going to be more than enough money left over from getting the banks out of the student loan business.  Forrest's mama said it right - stupid is as stupid does.

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