Should the Government Ease Student Loans?

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 costs.

What is the Pro-Liberty Position?

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 government schools.

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 government help.

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 cheer.

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.