The Case Against H.R. 1330 – The Student Loan Fairness Act

Michael Lux Blog, News 11 Comments

The arguments against the new legislation proposed by Karen Bass (D-California) center around two main themes.  The first argument is that this is the government sticking its nose where it doesn’t belong, and financing another bailout that the country can’t afford.  The second argument is that Student Loan Fairness Act is merely an expensive band aid that doesn’t fix the problem of the high cost of college education.

(Our previous article on The Student Loan Fairness Act Basics)
(Also check out The Case For The Student loan Fairness Act)

Our Country Cannot Afford H.R. 1330

One of the key components of The Student loan Fairness Act is that it limits the interest rates on private student loans and that it provides the opportunity for people to pay off their private loans with Federal Loans.  From a legal standpoint, this is the government modifying the terms of a contract agreed upon by two private parties.  Imagine if you sold a car to one of your friends and then the Federal Government said, “your friend cant afford the car you sold him, here is some of the money you planned on getting, but not all of it, by law your friend owns the car and owes you nothing.”  This sort of activity sets a dangerous precedent and moves us one step closer to a Nanny State.

Not only is the government sticking its nose where it doesn’t belong, but we cannot afford this legislation.  Right now Americans owe more in student loan debt than they do on credit card debt.  Upon passage of the Student Loan Fairness Act, billions of dollars owed to private lenders would be eligible to become federal government loans.  Given the generous forgiveness terms, much of the debt would never be paid off.  In a way, this legislation is not much different than a politician saying, “Vote For Me, and I’ll help you pay off your credit cards!”

The fact is that our country spends far more than it brings in each year.  This legislation is simply an expenditure that we cannot afford.

The Student Loan Fairness Act doesn’t solve the problem

The root problem with post-secondary education in this country isn’t that people have too many student loans (though it is a major problem), the root problem is that college costs way too much.

Cost of College vs. Inflation

Cost of College vs. Inflation

The Student Loan Fairness Act does not fix this problem.  Today, millions of college students go to college because they feel it is a necessary step in life.  They take out massive loans, because it is necessary to pay for college.  Only when they graduate do they realize how expensive their education truly was.  Colleges and Universities are making a fortune, and its getting so expensive that it is nearly impossible to attend without student loans.

If the legislation proposed by Karen Bass were to become law, colleges would have no incentive to reign in college costs.  In fact, they could keep increasing them.  Students wouldn’t complain because most of them would never pay back the full cost of their education, the university makes a handsome profit, and taxpayers are left footing the bill.

Finally, this legislation fails to address the lack of consumer responsibility that plagues the United States.  Repayment of Student Loans is something that each and every borrower agreed to do.  They signed contracts that explained what was required of them.  If the student loan bubble bursts as feared by some economists, it will be because people did not take the steps necessary to make sure they could pay back the loans.  Just like the mortgage crisis, this is another problem caused by people not planning ahead and relying on the government to bail them out.  This is not the type of behavior our taxpayers can afford.

  • Lil

    Who gives a rat’s patooty about private loans? Only incredibly stupid people take out private loans. I am 100% in agreement with the idea of lowering interest rates, but the federal government needs to lower the interest on FEDERAL loans. Everybody I know who is struggling with student loan debt has FEDERAL loans, not private!!! 6.8% interest on grad school loans is too high. The government needs to decide: does it want highly skilled engineers or does it want to make a profit off people who are trying to get the education they need to help make this country great? You just can’t have both. If we truly value education as a society, federal student loans should only be given to students who are a good risk, and the interest rates should be equal to the rate of inflation. You’d have far fewer defaults if students weren’t drowning in debt due to high interest rates on federal loans!

    • The Sherpa

      You make a couple interesting points. First, I agree 6.8% seems way to high of an interest rate for loans with zero risk of bankruptcy. It seems to be really bad policy to use student loans as a way for the government to make money. As for your lack of concern about private loans, you are right that there is more federal student loan debt, but the private loans account for over $150 billion dollars of student loan debt… its not just a little bit. I don’t think its fair to say only “incredibly stupid people” take out these loans because for many people its necessary to get the education they want (the undergrad federal loan limits are very low)… and the private loan terms are much worse than the federal loan terms, even if they do hike up the rate. Shouldn’t we be helping those people as well?

      Your idea to only lend to people who are a good credit risk is an interesting one. If a more select group of people get loans, who are more likely to pay them back, you can safely charge a lower interest rate. But many college students have little or no credit history, how do you propose we decide who gets loans and who doesn’t? What about the people who have poor credit, do you not think graduate school should be an option for them?

  • Stephen

    You’re exactly right in your assessment of this bill-there’s absolutely nothing about this bill that actually helps students. In fact, economically speaking this actually hurts students.

    Realistically speaking, the only way this bill would work is if these loans are still going to be offered to the same “qualified” people that were receiving them in the first place. You and I both know that simply won’t happen.

    Therefore, the real outcome is while interest rates are “lowered”, that will actually mean less students are receiving the aid they desperately need to accomplish the goals they have set out for. The particularly scary part-all of this can be simply explained in a fundamental supply and demand graph. Why Ms. Bass believes this is a solution is beyond me.

  • Ryan

    We cannot afford for graduates not to make any payments. This is an incentive to pay at as much as possible per month and then at the end of 120 qualifying payments the remaining debt is forgiven. There are tons of graduates out there not paying anything and allowing their loans to Default because they know there is no way their loan will ever be paid off anyway because they have over $100,000 in loans and the consolidated rate is 7.3%. The banks and car manufactures didn’t have to prove themselves for ten years as part of their bailouts but this makes us earn it and people are still contesting this? The only two reasons I could think why someone would really contest this is either because they were born with a silver spoon in their mouth or could never cut it in college in the first place so didn’t go then blamed it on having to take student loans.

  • I am a liberal democrat and the mother of a young woman using federal loans for school.I am against HR1330.If you borrow money you need to pay it back.If you can’t afford the projected payments,guess what?Maybe you should work more during your time in school and pay more for your education without borrowing the money.Figure out what your income will be for the job you will have when you are done with school. Borrow the amount you can comfortably make payments for.If you can’t afford it you cant go to school.It’s time for all of us to live within our means.By the way,this applies to all of us whether it’s education costs,cars,houses,you name it.

  • Just a hand

    So, I went to college because I wanted a better future. Well, I did not qualify for grants because according to our government my parents make too much. So my only option was a loan. My loan amount was around 24, 000 when I am done I will have paid in a little over 56000. They want to increase rates. Really? The cost of living continues to rise. Unfortunately my rate of pay doesn’t. My job just anounced a cap on each position salary. So if rates go up and my pay stays the same, what do you think the outcome will be. Many people say find a better job. Please tell me where this better job is. Its hard out there. Why not, help the students already in debt and in addition work on ways to prevent this continous downfall. Just because you were fortunate enough to have someone pay your college expenses or even find a good job, doesn’t mean you should criticize others. Your situation could change at any given moment. What if your business fell under tomorrow. Wouldnt you want help too. Listen no one asked for a handout just a hand. Stop judging others just because your situation is great, for now.

    • LARRY

      I Agree that some folks havent had bad things happen to them so they just don’t get it.
      have been fortunate to have a job; but, not so fortunate in some other ways. wife got disabled and spent time in hospitals due to type 2 diabetes, ulcerative colitus, and multiple back surgeries. Things happen we have no control over. Original loans were 21000 and ballooned to 49000.Could not get on track with them. Bring back our protections from these evil student loan servicers.

    • Thanks for sharing your perspective, Larry. I definitely think its important to have a system in place that doesn’t take advantage of people facing some difficult hurdles in their lives.

  • Matt

    I love this argument that you must pay it back regardless. In this economy are you kidding me? People lose jobs, get demoted, can’t find work and you want them to suck it up? Why can I have 150k in credit card debt or even gambling debt and get that discharged? Let me guess its not the same or not as important. Ok what about someone who gets cancer and racks up 200k in medical bills…I’d say that is far more important and can be discharged. The best option is don’t pay, let it go to court and settle it. We assume because they have a college education they will get a good job and pay it back…its not that easy.

    • You are right about the difficulty of getting these loans discharged, but just going to court is not going to necessarily be the best option. You will rack up interest, late fees, and attorney costs.

      Your point about getting a good job right out of college is spot on. If more people realized it wasn’t that easy, we might not have so many problems with education funding.

    • cute cap89

      I agree with this, and lets not forget the whole, be a STEM major and your are safe, that’s a lie NO major is safe honestly most STEM majors have to go right back to school b/c most of the jobs require high degrees or specialization than a BS degree, there are some jobs but not a whole lot you can do with a STEM degree at just the bs degree most jobs want more, a lot of STEM majors I knew got a rude awakening when they realized their biology or chem major couldn’t allow them to work in hospital labs like they thought, bc you have to go right back to school to get lic/ board certification even though some have the courses that are required to do the lab job, now even some of the on the job trained jobs are making changed that now require degree, I know a lot of students who want to pay their loan but cant bc of health reason, job salaries etc, and have stopped paying their loans, both private an federal its sad but i’m getting to the point where I don’t blame them,