CAPPS - Avocacy and Communication Professional Development

California Association of Private Postsecondary Schools

Separating the policy and the politics from Obama’s student-loan agenda

06/10/2014

The Wall Street Journal. June 9, 2014.

Rising student debt gets its turn in the political spotlight this week, with President Barack Obama unveiling an executive action on Monday and also throwing his weight behind a bill letting borrowers refinance at lower interest rates.

The executive action, which will expand a law capping borrowers’ repayments at 10% of their monthly income, will be the easy part of Democrats’ midterm-election strategy to help students with debt. The harder part is the bill, authored by Massachusetts Democrat Sen. Elizabeth Warren: analysts say it won’t go anywhere since its taxing of millionaires is a non-starter for congressional Republicans.

Obama’s executive action would expand the “Pay As You Earn” program. That program right now isn’t available to students who borrowed before October 2007 or who haven’t borrowed since October 2011. By expanding the program to loans regardless of origination date, the White House says the goal is to help an extra five million federal direct student loan borrowers.  One catch: the new plan won’t be available to more borrowers until December 2015.

Obama doesn’t need Congress for this, but he would for the bill he’ll be endorsing. Sen. Warren’s proposal would let anyone with either government-backed or private student loans refinance into a government-backed loan at today’s interest rates. The trouble for the bill is that it includes a surtax on incomes of $1 million and above, the so-called Buffett tax. Analysts at both Guggenheim Securities and Height Analytics say that the tax makes the bill extremely difficult to pass. But there’s a broader political point, says Chris Krueger of Guggenheim in a note on Monday:

The legislation is unlikely to move in the Senate and has almost no chance in the House though is an anchor of the Democratic midterm playbook and will be in the headlines all year. This Democratic pivot to student loan forgiveness is entirely political and is not designed to become law but rather to be used as a wedge issue in the midterm elections. The Warren Bill is controversial not only for its policy, but also its offset (surtax on those making over $1M), so even if you hold all 55 Democrats, you still need to locate 5 Republicans, which seems very unlikely – and it will face withering criticism in the GOP-controlled House.

 

Even with the Warren bill’s dim chances, expect to hear more about student loans this week — and before November. Senate Democrats have made college affordability part of their 2014 election-year agenda, which they’ve dubbed a “Fair Shot for Everyone.” That same agenda includes raising the minimum wage to $10.10 an hour.

Also on the student-loan front: Obama on Tuesday will take questions on the social-networking site Tumblr about college affordability and student loans.