|Rah! Rah! Rah!|
Paul Krugman, Nobel Prize Winner, loved President Obama's speech on income inequality
I'm sorry, Paul. But until the President backs up his soaring rhetoric with some action, I will remain cynical.
President Obama talked a lot in his speech about strengthening the safety net for people who fall on hard times. "We've . . . got to strengthen our safety net for a new age," the President said, "so it doesn't just protect people who hit a run of bad luck from falling into poverty, but also propels them back out of poverty."
These are fine words, but let's look at the millions of people who took out federal student loans to get a college education and can't pay them back. There is no safety net for them. No, for them, there is only a cascading river of woe.
First of all, people who default on their student loans find that it all but impossible to discharge their student-loan debt in bankruptcy. And this is true even for people who financed their education through private banks and not the federal student-loan program.
Second, many students enrolled at for-profit universities based on misrepresentations, but they
can't sue the institutions that defrauded them. We know that students who attended for-profit colleges have the highest student-loan default rate and the highest level of student-loan debt. Nevertheless, even if they accumulated debt based on a for-profit college's false promises, students are often unable to seek relief in the courts. That's because many--probably most--of the for-profit colleges make students sign arbitration agreements whereby students waive their right to sue fraudulent institutions in court.
Third, many student-loan defaulters find that the amount they owe on their loans is double or even triple the amount they borrowed. That's because interest accumulates on the unpaid debt and the government's debt collectors add a 25 percent penalty. As we saw in the Roth case (discussed in a previous blog), a woman who borrowed $33,000 to obtain a degree she never completed owed $95,000 by the time she sought bankruptcy relief.
And there is no statute of limitations on collecting unpaid student loans. Thus, the government and its agents can wait 20 years, 25 years, even 40 years to sue a student-loan defaulter. And the government can garnish elderly defaulters' Social Security checks and apply the amount collected to their student loan debt.
Do see any safety net for these people?
How many people have their backs against the wall due to their college loans? Millions. According to the Consumer Financial Protection Bureau, 15 million people whose loans are in the repayment stage aren't making payments. Six million are in default, and almost 9 million more have obtained deferments or forbearances that allow them not to make payments.
In his speech, President Obama acknowledged that people have had trouble paying off their loans, but he said federal grants and loans go farther under his administration than they did before. Of course if that were true, student-loan indebtedness would not be going up every year.
The President also said that the government has made it "more practical" for students to repay their loans. I take it he means that the government is encouraging students to sign up for income-based repayment plans that obligate them to make loan payments for 25 years. The President may think 25-year loan repayment plans makes loan repayment more practical. But in fact, these plans are a 21st century version of the indentured servant system.
In addition, the President said his administration was advancing "an aggressive strategy to promote innovation that reins in student costs," an apparent reference to his vague college rating system. "We've got lower costs so that young people are not burdened by enormous debt when they make the right decision to get higher education," he asserted.
But this simply isn't true. Total student-loan indebtedness has grown to $1.2 billion, and average indebtedness for a college graduate is risen to more than $29,000.
Of course President Obama could construct a real safety net for distressed student-loan debtors if he chose to do so. He could promote an amendment to the Bankruptcy Code that would allow destitute student-loan debtors to discharge their college loans in bankruptcy. He could bar for-profits from forcing their students to sign litigation waivers as a condition of enrollment. He could reform the student-loan debt collection protocol to lower the fees and penalties that debt collectors charge defaulters. He could stop the practice of garnishing elderly defaulters' Social Security checks.
As he done any of these things? Has he even proposed doing any of things? No, he has not. And although it is true that President Obama does not have a cooperative Congress, he could begin weaving at least a partial "safety net" through executive orders. A lot of the abuses in the for-profit industry and abusive debt-collection practices could be stopped by executive action or administrative regulations.
So, yes, Mr. Krugman, I am cynical about President Obama's speech. And Mr. Krugman should be cynical too. After all, he is a Nobel-Prize winning economist who surely knows that crushing student-loan debt has thrown millions of people out of the American economy.
Mr. Krugman rebukes the cynicism of the so-called "pundit class," but it is Mr. Krugman, The New York Times and the entire elitist media that appear cynical to me. Our liberal media have become nothing more than cheerleaders for an aimless President, while millions of young Americans who sought a college education in good faith suffer from an insane federal student-loan program and a rapacious for-profit college industry.
Editorial. The President on Inequality. New York Times, December 5, 2013, p. A30.
Paul Krugman. Obama Gets Real. New York Times, December 6, 2013, p. A31.
President Barack Obama. Remarks by the President on Economic Mobility. White House Press release, December 4, 2013.