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Kline: Obama student loan program is a ‘mistake’

WASHINGTON — Rep. John Kline said on Fox News Monday morning that President Barack Obama’s new student loan program is going to “leave the taxpayers holding the bag.”

Obama last week announced changes to the federal student loan program that allow borrowers to limit their monthly student loan payment to 10 percent of their discretionary income in 2014, down from the current 15 percent. Outstanding debt would be forgiven after 20 years, down from the current 25.

The White House estimates 38,000 Minnesota students would be able to take advantage of the new program and more than 149,000 would be able to consolidate their loans and reduce their interest rates. Obama announced he would institute the plan through an executive order.

Kline, the chairman of the House Education and the Workforce Committee, detailed two main objections to the plan, among them the increased federal borrowing associated with the loan program.

“I just think this is a mistake,” he said. “Some of the changes are going to affect a small group of students; some of them are going to affect a larger group of students. All of it, in fact, is going to encourage more borrowing and, I’m afraid, it’s going to leave the taxpayers holding the bag.”

Kline said increased government spending on higher education is not a tenable policy and schools will eventually need to be proactive in reducing the cost of education.

“They’re going to have to look at their own operating costs and start to curtail the costs of going to college,” he said. “We simply can’t keep providing money from the federal government in the form of subsidized or actual loans and Pell Grants when we don’t have the money.”

Beyond that, Kline said he was concerned about Obama’s use of the executive order. The president has begun issuing a series of executive orders to accomplish parts of his jobs proposal, justifying their use by saying America “can’t wait” for the divided Congress to take action on them.

Kline wrote Education Secretary Arne Duncan on Thursday asking for more information on the program’s new rules.

“[Obama]’s been doing that on issue after issue,” Kline said. “What he’s doing on student loans, in our analysis, is technically legal, but it is a stretch for him to do this and it was not the intent of Congress to do this at this time.”

Comments (26)

  1. Submitted by Matthew Brillhart on 10/31/2011 - 01:26 pm.

    Oh, put a sock in it Kline. Recent college grads are some of the biggest drivers of the economy. You know, between buying a car, a house, having babies, and so on. College graduates can’t do those things if they are saddled with debt. Kline is right that colleges need to reduce the cost of education, but that is no reason to criticize this particular action, at this time. We need college grads out there spending money and producing demand. That will be a huge part of our economic recovery. But of course, Republicans will do ANYTHING to keep the economy stagnant and prevent Obama from getting re-elected.

  2. Submitted by RB Holbrook on 10/31/2011 - 01:39 pm.

    “What he’s doing on student loans, in our analysis, is technically legal, but it is a stretch for him to do this and it was not the intent of Congress to do this at this time.”

    The intent of Congress is to fiddle while Rome burns, in hopes of gaining some electoral advantage in 2012. It’s not the intent of Congress to do anything right now, except protect the interest of the wealthy,and to try to make the President look bad. Sorry, Rep. Kline, but the country has real problems that need to be adressed now. Time to act, instead of huff.

    Rep. Kline’s objections really amount to 1. The Obama Administration is doing something that will be seen as helping Americans and 2. it doesn’t benefit any of Rep. Kline’s generous donors. It’s hard to see either concern as being very important.

  3. Submitted by Dennis Tester on 10/31/2011 - 01:39 pm.

    Ron Paul is in favor of eliminating government-backed education loans altogether, using pretty much the same argument. The cost of college is through the roof and much of the reason is because of government subsidy.

    If you want to increase the cost of something, let government subsidize it (education, health care).

    Generations of students prior to this one were able to work their way through school, but with the cost of tuition now, that’s virtually impossible.

    People are going to have to take longer time to graduate, take out private loans, or go to less-expensive schools if they want a traditional academic degree because neither the students nor the taxpayers can afford this present system much longer.

  4. Submitted by Rachel Kahler on 10/31/2011 - 01:49 pm.

    Who does Kline think “the taxpayers” are? Is he trying to convince us that these kids getting degrees not only fail to pay taxes, but will never pay taxes. Gosh, I hope not. Those kids are paying for my Social Security! (*eyeroll*)

    Quite frankly, I see this as a minor modification to the current system. A benefit, however, is that payments to the student loan will reflect actual income.

    The downside, of course, is that because higher education has become over-ubiquitous, the price has skyrocketed and the reward is often less than the cost. Not a big deal if your goal is cerebral rather than practical. But, increasingly, it has become a matter of necessity to get a degree in order to get a job. Not because the work demands it, but because the employer does. Some employers will justify it (and the ability to pay diddly to their educated employees because there are so many willing to fill any gap) by saying that getting an education shows “an ability to finish a project.” Hooey! It simply means that they have a captive worker–one that’s worried about paying off an undergraduate degree while never using it.

    Kline also completely ignores the fact that default rates for students are fairly low, but rising. Making it easier to pay back a loan will–wait for it–make it easier to pay back the loan! Another part of this whole package is that it will limit access to Federally-backed student loans to institutions with a record of producing students that DO pay them back, overall reducing the cost of the program. There will be some for-profit schools that will simply lose access to federal dollars because they can’t produce students that can pay back their loans.

    Finally, the overall debt resulting from student loans surpassed that of credit cards, recently. Soon, student loans will be more than $1 Trillion. Those are future workers. If we start out our future workers that much in debt, what hope do they have in paying off their opportunity to even get a job? While it might be the wet dream of the Corporatocracy to have so many worker bees desperate for whatever pittance they get, it’s not a good policy for what’s best for our economy as a whole. Recent college graduates are losing their ability to contribute to the economy because they are in entry-level jobs, wanting and needing to set up an independent life, maybe with a house or a spouse or kids or a car, but they’re busy paying off huge student loans.

  5. Submitted by Neal Rovick on 10/31/2011 - 02:35 pm.

    Kline is entirely in the “for profit” education’s pocket–his biggest fight has been to prevent dropping colleges’ federal eligibility if too many of that colleges’ graduates are in default of student loans.

    But isn’t the high level of default for over-priced or worthless degrees exactly what we need to prevent in order to lower the cost of the federally guaranteed student loan program?

    So where is his concern of fiscal responsibility? Perhaps it’s only with respect to his campaign fund.

    (quote)

    In the 2009-2010 election cycle the industry donated millions of dollars to the campaigns and political action committees of nearly 100 Democratic and Republican congressional candidates. More than $100,000 went to Rep. John Kline of Minnesota’s Second District, the new Republican chairman of the House Education Committee.

    (end quote)

  6. Submitted by Dimitri Drekonja on 10/31/2011 - 02:45 pm.

    “If you want to increase the cost of something, let government subsidize it (education, health care).”

    One wonders how countries that have government-financed healthcare manage to do so while spending 1/2 the per-capita of the largely private-sector US system, especially since they generally have superior outcomes? One also wonders at how the VA system, despite having a population significantly more ill than the US population as a whole, manages to outperform the private sector (while spending less money, to boot). One also wonders why medicare expenses (government run) are growing at a slower rate than private health insurance. All these seem to suggest a major problem with your assumption.

  7. Submitted by Greg Kapphahn on 10/31/2011 - 03:01 pm.

    Let’s be clear, Rep. Kline, being one of the MOST sycophantic supporters of the big money financier and big money military-industrial complex wings of the Republican Party, shares the dream of so many in that wing,…

    that those folks get to invest their money in borrowers-can’t-lose programs wherein they loan it to struggling college students (while doing everything in the power to reduce public support for colleges and universities, nationwide) in order to make SURE those students have to borrow as much money as possible.

    In their dreams of a perfect world, EVERY student in this nation with a college degree would end up in debt up their eyeballs by the time they graduate, in loans for which they can NEVER find any relief,…

    and their creditors just get to settle back and soak up a big piece of the incomes of EVERY ONE of those college-educated kids for as long as those kids live.

    In essence, Kline, et al, are trying to reduce college graduates to indentured servanthood for the rest of their lives.

    They’re having to work harder at that now that the Obama administration has shut down the outrageously abusive, Bush-era “private student loan” scams,…

    but the real danger Kline and his fat cat buddies are complaining about is that the student loan system in this nation is in danger of being rearranged to the point where it provides a serviceable means to a reasonably-priced education to student borrowers (as it did in earlier decades),…

    rather than providing precious little but a source of easy money for those already living on easy street: their fat cat lenders.

  8. Submitted by Richard O'Neil on 10/31/2011 - 03:07 pm.

    Kudos to Mr. Kline for calling a spade a spade.

  9. Submitted by Dennis Tester on 10/31/2011 - 03:58 pm.

    It’s amazing that while some of the above commenters defend the over-priced product of Big Education, they seem to think that the solution is more government subsidy.

    Look, the real opposition of the American Left is the American taxpayer. But they can’t say that, of course, so they have to prop up the straw man of “evil corporations” or “fat cats” when the people who stand in their way from getting what they want are their own tax-weary neighbors.

  10. Submitted by Jeff Michaels on 10/31/2011 - 04:30 pm.

    The average cost for a public college student now is $18,000 a year. The private college student pays around $40,000 annually. The increased cost for a college education in the past decade has been staggering. It makes one wonder who is benefitting from all these windfall profits?

    Since faculty lounges and newsrooms are the last bastions of liberalism left in the country, I am pretty sure we won’t be receiving the answer from our establishment media outlets anytime soon.

  11. Submitted by Rachel Kahler on 10/31/2011 - 05:39 pm.

    @#9 and #10
    Yep, education is overpriced. But it’s mostly because it’s over-demanded. (You guys seem the type to understand supply and demand, right?) The REASON it’s over-demanded is not because you can get a loan, it’s because employers have taken advantage of the decreased job supply in order to essentially extort their potential workers. Where employers might not get away with third-world wages, they can get higher educated workers for second-world wages. Employers are requiring degrees for jobs that should not reasonably require them. Thus, the demand for a degree has increased (increasing the price), while the supply of educated workers has increased (decreasing wages for those educated workers).

    To top it off, with public support for public education decreasing, public universities must squeeze the money out of individuals competing for increasingly unfunded resources. In other words, education is now walking the fine line between extreme capitalism and outright greed.

    There are several answers to this education death spiral:
    1. Decrease access to higher education. Ok idea if it can be done right, which is doubtful. This must be a function of ability, not capital. This would probably work best if public schools are fully publicly funded. Of course, China and Europe do this, already.

    2. Legislate requirements (or lack thereof) for certain essential careers. This would reduce the demand for education because lower-paying jobs would not require higher education. The result would be education levels on par with pay levels. This solution, or any part of it is never going to happen in modern America.

    3. Increase public support of higher education, thereby decreasing individual burden. This would also have the effect of decreasing dropouts due to financial burden (and the need to get a crappy job simply to pay the bills). The net result is to increase return on investment.

    4. Increase the ability for students to pay off their loans. This is part of the solution provided in Obama’s plan. By linking payment to ability to pay, you decrease the likelihood of default. This might increase the amount of time required to pay off the debt, but increases the overall money recovered. As an aside, it also increases the amount of profit to be gained by financial institutions that participate. The net result (since the Fed isn’t actually providing the loans, but only guarantying them), is reduced cost.

    5. Increase the income of college grads. This is an alternative way to solution #4. In a capitalist economy, either the supply of highly educated workers must go down or the supply of jobs requiring highly educated workers must go up for this to happen. Proper trade agreements might help with this. Without more protectionist policies, though, this simply can’t be legislated.

    6. Decrease (or make free) the cost of education for essential services or areas of great need in return for service. For example, the cost of medical school is prohibitively high. At the same time, the demand for non-high paying medical jobs, such as rural practitioners, is extremely high. Providing a free education for qualified students to become doctors or nurses in return for practicing in needy areas for a modest stipend would reduce the overall cost of medical school while possibly also reducing the overall cost of healthcare.

    7. I’m sure there are others.

    8. A combination of 2 or more of the above.

  12. Submitted by Richard Schulze on 10/31/2011 - 08:15 pm.

    Subsidizing (including government guarantees) student loans has led to a surplus of student loans. In particular, it has led to a surplus of loans to students who aren’t likely to finish college, and to students who are studying subjects which are unlikely to lead to career paths that will enable loan repayment.

    A few suggestions:
    Yes, let students pay off loans as a fraction of their future incomes, which the IRS can help collect. But the government shouldn’t take the risk, because the government will make loans to all sorts of people with no hope of repayment. Let banks hold the risk (or investors), or even better, make universities pay for the risk out of their earnings. That will certainly change their thinking.

    Finally, 18 year olds often make terrible decisions. Nobody in their right mind lends money to an 18 year old for a car, much less a house. But we lend them tens of thousands of dollars for college. If someone wants a subsidized loan for college, they should have to do a year or two of government service, in the military or otherwise. That will make the commitment more real than just another piece of paper to sign while applying to college.

  13. Submitted by Thomas Swift on 11/01/2011 - 08:54 am.

    This story is very poorly reported here. There is simply not enough information presented to make a decision on who is right.

    Allow borrowers to limit their monthly payment to 10% of their discretionary income sounds great. But forgiving after 20 years? What the heck does that mean?

    With the incomplete information presented here, one is tempted to conclude that Obama has put mechanisms in place to allow more students to simply default on their loans.

    One is also tempted, given the information that *was* given, to conclude that the writer’s goal was not to present informative facts for consideration and discussion, but to provide a vehicle to cast aspersions on Rep. Kline.

  14. Submitted by Rachel Kahler on 11/01/2011 - 10:16 am.

    @#9
    “…the real opposition of the American Left is the American taxpayer.”

    Are you saying that the American Left is exempt from taxes? I’ll have to notify the IRS of this. C’mon! That’s just ridiculous.

    @#14
    Feel free to look it up. A single news article can’t possibly provide ALL information. Right now, student loans are “forgiven” at 25 years (restrictions and conditions apply). It’s not like this is a new concept that you can’t possibly independently get the scoop on. But, in case your Google fu is broken or lazy, feel free to rely on my Google fu:
    http://bostinnovation.com/2011/10/31/what-president-obamas-student-loan-forgiveness-plan-means-for-you/

    http://www.finaid.org/loans/forgiveness.phtml

    http://www.rwbpress.com/2011/11/01/student-loan-forgiveness-programs-for-public-service-workers-opportunities-for-erasing-college-debt/

  15. Submitted by Ellen Brown on 11/01/2011 - 10:58 am.

    Some adjusting of terms and opportunity to consolidate loans seems okay with me. What I object to is people (read “former students”) suggesting student loans should be forgiven.

    The students who took out the loans have no one to blame but themselves for graduating with debt. The economic situation has increased the pain of that debt and some adjustments are okay as a result.

    But these students got something for the money they borrowed. If they didn’t think about the impact at the time of taking out the loans (as I heard a recent graduate say on MPR the other day), that is no excuse. Who knows how many other folks didn’t go to college because they did think about it and didn’t want to take on the needed debt.

  16. Submitted by Rachel Kahler on 11/01/2011 - 12:46 pm.

    @#16
    Student loans are not simply forgiven. There are eligibility requirements.

  17. Submitted by Thomas Swift on 11/01/2011 - 01:58 pm.

    Thanks for proving my point, Rachel. If you have to Google basic information to fill in the blanks, you’re reading a poorly reported story.

    Thanks for the links, too. I was completely unaware that loans were being forgiven…probably because I always pay mine off.

  18. Submitted by Bernice Vetsch on 11/01/2011 - 03:43 pm.

    Some time ago, I wrote the US Department of Education to ask that they look into providing free higher ed to all, but that all graduates pay a small percentage of their income until they retire to finance the educations of succeeding generations. The department’s representative said they had thought of that and would do it if they could figure out how to pay for the first four years.

    That “first four years” bill would be a fantastically valuable investment in our by our national government. After that, the small tax on graduates’ income would take the government off the hook and pay off in an improved economy and economic security.

  19. Submitted by Thomas Swift on 11/01/2011 - 05:19 pm.

    “Some time ago, I wrote the US Department of Education to ask that they look into providing free higher ed to all”

    Bernice, for “free higher ed”, you wrote to the wrong people.

    What you needed to do was ask the Professors to teach for free, publishers to print textbooks for free, clerks to file for free, janitors to sweep for free, electric companies to provide free energy and…well you get the picture.

    No wonder it didn’t pan out!

  20. Submitted by Virginia Martin on 11/01/2011 - 07:49 pm.

    Bernice: I agree with you. As I read these comments, I thought of my own career and life. Back then, as a child of a lower-class family for whom educating girls was not a priority–it was for the boys though–I decided to go to school which meant paying for it myself. I worked hard, I studied hard, and I got through 6 years of college. It was tough. And I made it without loans. But everything was different then. I could not have made it today. It would have been way out of my league, unthinkable.
    I’ve worked hard at my profession all my life, paid higher taxes because of higher pay, and helped make my state and my country a little more prosperous.
    And that’s the real reason we need to get our children and young people into college if they are intellectually and emotionally eligible. They help make us all prosperous. It’s time we started thinking about once again providing higher education at an affordable level. That’s what land-grant colleges were all about: through the Morrill Act, the federal government gave land for the colleges and additional legislation later provided enough funding to keep tuition low. The United States understood the need for education to develop our country and make us prosperous.

  21. Submitted by Bernice Vetsch on 11/01/2011 - 09:27 pm.

    Thomas – When California’s colleges and universities were free to students, the state’s number of graduates in the arts, humanities, sciences and business grew enormously. It was this number of educated citizens that made possible the creation of Silicon Valley with its hundreds of thousands of good jobs and its gifts of inventive technological advances to the rest of the world.

    Education is an investment in the future, not a product to be sold to those who either can afford to pay for it or who are willing to go into debt, big debt, in order to work in the fields they desire.

  22. Submitted by Dennis Tester on 11/02/2011 - 08:02 am.

    Bernice and Ginny are missing the point. No one is arguing against the benefits of higher education. We’re wondering why those who claimed that the high cost of health care or pharmaceuticals or gasoline is because fat cats are lining their pockets, are not making the same charge against Big Education.

    As long as any of those products and services are not operating in a free market and are subsidized by the government, the cost will continue to rise because the full cost is not being borne by the customer.

    When the seller knows that a disinterested third party is subsidizing the buyer it becomes easier to raise the price whether it’s for health care, prescription drugs or higher education. And it’s up to the taxpayer to put their foot down and say no more.

  23. Submitted by Rachel Kahler on 11/02/2011 - 09:28 am.

    @#23
    “Big Education.” Ahahahahahahahhahahaha! Do us a favor and do some investigative reporting on “Big Education.” Show us who the “fat cats” are. Educate us, if you will.

    @#18
    I’ve said it before, and I’ll say it again: A single news article is not meant to provide every piece of information to those unable or unwilling to furnish the basic knowledge on the topic themselves. With the knowledge that loans are “forgiven,” it’s easy enough to find out how they’re “forgiven.” I’m glad you pay your loans off the conventional way, but a “forgiven” student loan is paid off via service most often, and only sometimes truly forgiven under fairly stringent conditions. No one misses the baseless insinuation that people who have their student loans “forgiven” are somehow less worthy than you are. It undermines your point, even if we could swallow it.

  24. Submitted by Dennis Tester on 11/02/2011 - 03:20 pm.

    “Do us a favor and do some investigative reporting on “Big Education.” Show us who the “fat cats” are.”

    So you agree that the “fat cats lining their pockets” charge is bogus.

  25. Submitted by Paul Brandon on 11/02/2011 - 07:07 pm.

    No, Dennis, we think that you are.

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