President Obama is telling his presumed constituents of college students that he is fighting for them against the evil republicans. They want to raise the student loan rate back to 6.8 percent (already a bargain) from its temporary low of 3.4 percent. Republican nominee Mitt Romney has already caved out of fear of giving Obama another campaign sound bite. Support for the 3.4 percent rate is already prominently featured on Obama’s campaign web site.
Government-backed student loans, let me tell you, will be our next financial catastrophe. The default rate is rising and banks (and the government as guarantor) will be again left with toxic assets. Government backing of student loans is already an enormous asset for college students. Banks would not otherwise lend to students based on the promise of higher future earnings. They should be happy to get the loans at 6.8 percent because scholarly studies place their lifetime annual rate of return from a college education between 8 and 13 percent. A college education is a ticket to the upper middle class.
The trap Republicans face is that Obama can promise to have the government pay for any meritorious good – green cars, condoms, books, laptops, free public transportation, virtually anything – and paint those who oppose as miserly ogres who do not want to help. Mitt Romney cannot cave in to every such “caring” gesture of candidate Obama.
How and where can we draw the line?