Student Loan Debt: Democrats Shift Blame from Obamacare

Student Asleep (Adrian Sampson / Flickr / CC)
Adrian Sampson / Flickr / CC

With 27 percent of student loan borrowers in default, Democrats want to shift blame away from the multi-billion dollar indirect Obamacare tax that is driving interest rates up on student loans.

Recently, U.S. Rep. Mark DeSaulnier (D-CA) issued a press release regarding H.R. 3675, known as the “Student Borrower Fairness Act,” which acknowledges that “people of all ages are buried in student loan debt which holds them back from being able to buy a car, purchase a home, save for retirement, or start a family.”

He went on to claim, “It is patently unfair that the same big banks that toppled our economy borrow from the federal government at extremely low interest rates while student borrowers are struggling to pay back their loans.” His bill is an effort to deflect responsibility away from the actions of Congress and on to greedy banks and CEOs that have supposedly caused student debt to rise to about $1.47 trillion, and interest rates supposedly tied to market rates to be higher than mortgage interest rates.

Rep. DeSaulnier likely knows that the real reason that student loan interest rates are higher than private sector rates is that the Democrats’ veto-proof Congress effectively nationalized student lending in 2009 when they created the Federal Direct Lending Program.

Congress and President Obama said the take-over was justified as a way to help people of modest means obtain an education. But it also created a huge and very lucrative interest income stream from student loans that the Congressional Budget Office projected would amount to about $127 billion profit over the next decade.

With the student loan cash rolling in, the President and his Democrats’ veto-proof Congress in 2010 passed the “Patient Protection and Affordable Care Act,” commonly referred to as Obamacare.

Besides adding 20 new direct tax increases that rack up $50 billion-plus in revenue each year, Congress indirectly taxes students by having Obamacare siphon-off about 69 percent of student loan profits, or about $8.7 billion a year.

That subsidy not only means that student loan interest rates will be higher after students graduate, but they will accrue at a higher rate while students are still in school.

I estimate that freshmen students at four-year schools who borrow the maximum Stafford Loan each year will have an Obamacare indirect tax of more debt equal to about $400 for subsidized borrowers and $1,400 for non-subsidized students. Post-graduate students in three-year programs will face $3,400 in more debt as an Obamacare penalty.

As a result, the national average for student debt balances outstanding has risen to $29,400. That helps explain why the Federal Reserve reported that 27.3 percent for all student loans in repayment are now in default.

Rather than eliminating the Obamacare subsidy, the DeSaulnier bill proposes to pay for the cost to bring down the excess interest cost being charged to students to subsidize Obamacare by increasing corporate tax rates on companies that pay their CEOs or highest paid employees more than 100 times the median compensation of all employees.

But eliminating the indirect Obamacare tax on students is impossible, because Obamacare is actuarially insolvent. Breitbart News recently reported that Obamacare’s mandate insurance requirements will push up the average cost of healthcare premiums from 18 percent of wages when the bill was passed in 2010 to 24 percent of wages by 2020.

Congress did make some adjustments to student loan rates in 2013, but the changes only applied to new borrowers. Amazingly, with 37 million Americans having total student debt outstanding of $1.47 trillion, student debt now exceeds annual U.S. federal taxes collection.


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