Obama's College Proposal Long on Hints, Short on Specifics

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President Barack Obama talks about his vision for rebuilding the U.S. economy while at Knox College Wednesday, July 24, 2013 in Galesburg, Ill.  (AP Photo/Seth Perlman)
Seth Perlman/AP
The student debt crisis is still looming, and President Obama has drawn a line in the sand. Sort of.

For years, the president has drawn attention to student debt, often referencing his own student debt problems (as he's often pointed out, he didn't finish paying off his college loans until just before becoming a U.S. senator. This week, he announced the unveiling of a new student loan proposal. Unfortunately, neither he nor his staff mentioned any specifics: an email sent out by his office on Tuesday promised that his plan "includes real reforms that would bring lasting change," but cautions that "They won't all be popular with everyone -- including some who've made higher education their business."

While frustratingly vague, Obama's announcement hints at a definite policy direction. The president has often criticized out-of-control tuition increases; by warning "some who've made higher education their business," he may be indicating a plan to go after price-gouging colleges and universities.

On one level, the college funding problem is fairly easy to understand: at the same time that college degrees are increasingly necessary for a good job, their cost has skyrocketed, far out of pace with the average middle class income. To pay for these college degrees, students take out massive loans -- more than $26,500 on average -- gambling on the possibility that their post-graduation jobs will pay enough money for them to cover their loan. Since the Great Recession, that gamble has, increasingly, failed to pay off, as millions of college students have graduated into a sluggish job market, further dragged down by low-paying internships.


For individual students hoping to pay off their debt and get on a firm financial footing, this is a personal problem; on a larger scale, though, it's a national crisis. After all, students who are scrambling to make ends meet are less likely to buy homes and cars, start businesses, build families, and otherwise contribute to the economy. Add in the huge scope of the problem -- there's over $1 trillion in student loan debt hanging over our collective economic heads -- and you end up with an economic hot potato that has the potential to massively slow down economic growth.

With that in mind, it's easy to see why Obama is trying to make higher education into a top political issue. And, to his credit, he has already put his money where his mouth is: his "Pay As You Earn" plan, enacted last year, limits student repayment on Federal loans to 10 percent of their income, and retires the loans after 20 years. For students who don't take out private loans, this translates into a humane, reasonable repayment schedule.

Not all of the president's plans have been as effective, however. His compromise on student loan interest rates is great in the short term, but promises to leave rates rising sharply when the economy improves.

The really bold student loan solutions are coming out of state governments, most notably Oregon, which recently approved "Pay It Forward," a plan that would enable students to defer payment until after graduation. While in college, they wouldn't pay tuition; afterwards, they would have to send their colleges 3 percent of their salaries for 20 years. This proposal follows in the footsteps of FixUC, a University of California proposal that is currently under consideration.

President Obama's vague promises aside, chances are that his proposals won't be nearly as bold or revolutionary as the ones currently being passed around at the state level. The trouble is, if we really hope to forestall a major student debt crisis, they'll need to be.

Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.



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