It has been a rough few weeks for Obama and his
administration, so what better time is there to sign an executive order to
curry favor with a segment of the population? Obama’s latest action is to sign an executive order to make
it easier for some people with student loan debt.
Just like most things coming out of Washington DC, this is
not something that is straightforward.
While federal law already caps loan payments at 10 percent of monthly
income for most, this new order will apply to people who borrowed prior to
October 2007 or those who have not borrowed anything since October 2011.
While this is expected to help millions of people with
student loan debt, it won’t become available until late 2015.
Once again, Obama is taking it upon himself to make the law
what he wants it to be. He is
probably purposely not going through Congress, not because he can’t get
something through there, but because he wants the credit for this.
Obama has not been all that popular these days outside of
Democratic circles. There is also
a good chance that Democrats will lose congressional seats with the November
elections drawing closer. What
better way to gain some support for himself and his party than by buying off a
segment of the population? (In
fairness, it is done in both major parties.)
Of course, the massive amount of student loan debt is a
bubble that has been subsidized and promoted by the government, long before
Obama ever became president. The
government issues loans that would not necessarily be issued by others in a
free market. The government
encourages people to go to college and to take on debt. This also helps to raise the tuition
What is the
So what is the proper position to take for someone who wants
to promote liberty and free, voluntary markets?
At first, it is easy to jump to the conclusion that Obama
should not be doing this, as he is letting people off the hook and promoting an
idea of less responsibility. While
this may be true, I think we also have to step back and look at the big picture.
If someone asks me whether there should be prayer in
schools, I respond that it should be up to each school. I am not a supporter of
government-funded schooling, so I can’t really take a position with regards to
The same situation applies here. Why is the government in the student loan business at
all? It is not only
unconstitutional, but it is a complete distortion of markets and it requires
putting taxpayers on the hook for any loans that go bad.
So while I think Obama is simply trying to buy votes and
gain favor with a portion of the American people, I can’t really say whether
this particular executive order is right or wrong, given the circumstances,
aside from the fact that it is being done through executive order.
Obama is wrong because he supports government-subsidized
student loans. He supports this
regardless of his latest executive order.
He is not someone who supports the free market. He does not believe, at least with any
consistency, in voluntary agreements.
He does not believe that the market can function on its own without
If there were no government student loan programs, then we
wouldn’t have a lot of the problems we have with higher education. College would likely be far cheaper. Some students would still obtain loans,
but they would likely be far smaller in size. Loan companies would be cautious in lending too much money
in fear of not being repaid.
When the government is heavily involved in these things, it
distorts markets. Unfortunately,
it also gives politicians a chance to buy more votes and have some people
Let us remember that there is no such thing as a free
lunch. I am guessing that Congress
will not reduce spending to offset the decrease in student loan payments. Instead, the Fed can create more money
out of thin air and the deficits can get bigger. We can trade a little student loan debt for a little more
inflation and government debt.