Opinion
State of the Union appeals to younger generation, but holes exist
By Samuel Gomez '12
February 2, 2012
The 2012 election season has officially started. With the field of Republican nominees narrowing and the competition heating up, President Obama is definitely in full-scale campaign mode. In his State of the Union Address last week, the President firmly drew a line in the sand between his economic policies and those proposals of his Republican opponents who, he claims, would reinstate failed policies of economic de-regulation—which in the past resulted in rampant speculation and market instability preceding the 2008 downturn.
Besides touting his administration’s accomplishments, however, the President also made an appeal to a large segment of the unemployed population: students and young adults.
There’s no denying that for people our age, the job market is especially tough. Even an undergraduate degree, in some cases, is not enough to earn a graduating senior a job right out of school. While in some degree paths—especially science, engineering, technology and medical fields—jobs and entry-level positions are plentiful, many other careers are increasingly tough to break into. At the same time, college tuition has increased. According to Hamid Shirvani of Inside Higher Ed, average tuition at public four-year universities has more than tripled since 1980.
The result of this situation is bleak. While a college education is an increasingly expensive investment, that investment is returning less and less, especially in the first few years out of school—the most important time for student borrowers to begin repaying their private loans and start building positive credit.
By attempting to address some of these higher education issues in his speech, President Obama has zeroed in on young voters as key constituents in his 2012 re-election campaign. The government does provide some assistance now, as individuals who qualify for federal direct student loans though their FAFSA now receive artificially low interest loans directly from the federal government. These loans supplement federal grants, tax incentives for parents and institutional grants and scholarships so that students who otherwise would not be able to afford college are able to attend.
Most specifically, the President called for enhanced protection of federal direct loan recipients. Federal loans that, ironically enough, were not issued directly by the federal government until passage of the “Obamacare” Affordable Care Act in 2009. In June of this year, the interest rate for currently repaying federal direct loan recipients will double from an aggregated average of 3.4 percent to 6.8 percent. Last week, the President asked Congress to reverse this increase and preserve the lower interest rate. The College Cost Reduction and Access Act of 2007 originally cut the fixed interest rates on newly originated subsidized Stafford loans for undergraduate students to 6.0% (2008-09), 5.6% (2009-10), 4.5% (2010-11) and 3.4% (2011-12), with a return to 6.8% in 2012-13.
Besides fighting interest increases, though, the President also touched on other educational reform possibilities, including expanding the Pell Grant program to account for the “forgotten lower middle class.” These students have household family incomes of more than $60,000, and therefore are disqualified for federal grants or direct loans. While parents of these students who are forced to pay top dollar for education receive tax credits for their troubles, the deduction is hardly enough. Many lower middle class students are forced to finance their education though private loans—some of which carry adjustable interest rate agreements. While APRs vary depending on credit history and income, generally private student loan interest increases steadily once repayment begins. The president has essentially called for a freeze on student loan interest for federal direct loan recipients. While this appeals to the vast number of direct federal aid recipients, the lower middle class recipients—those whose household earns more than $60,000—are left out in the cold unless Congress makes the program more inclusive.
These broad proposals to reform higher education finance will hardly be resolved before the 2012 Presidential election. While President Obama would have us believe that he is looking out for college students’ pocketbooks, extant tax code and FAFSA logic does not match a vast number of American families’ financial needs who have children applying to college now.
President Obama has proved a tenacious and, at times, voracious contender. The President hopes to use his appeals to decrease debt burden on young Americans to bolster his re-election chances in this year’s campaign.