Robin Hood robbed the rich to pay the poor; now Uncle Sam is robbing the old to pay the young — raiding pension funds to keep student-loan rates artificially low.
President Obama’s much-touted plan to put a one-year freeze on student interest rates was signed into law with great fanfare this month. But the bill’s supporters hadn’t said where the money to subsidize the lower rates would come from.
Columnist Daniel Indiviglio of Reuters dug up the details this week, calling the bill financial “hocus-pocus.” The student-loan scheme was buried in a transportation bill. In it, the government raided its pension-guarantee fund to the tune of $6 billion — although the fund is already running a deficit of $26 billion.
The student-loan bill puts the pension system in jeopardy. To cover future payouts, pension contributions will need to rise by as much as $50 billion a year. The fund’s already broke; now, thanks to this reckless bill, it’s one step closer to total collapse.
Plus, the bill lowers accounting standards for pension funds, letting them contribute less money than before while forecasting the same future return. That is, the president and Congress are pretending that a system that’s already broke will magically prosper in the future with even less direct investment.
The Pension Benefit Guaranty Corp is designed to insure private retirement plans. Millions of present and future retirees depend on it. Putting it at risk is simply irresponsible.
The president spent months touring college campuses, talking up his plan to keep student-loan rates at 3.4 percent, rather than let the rate double on July 1. In a high-profile speech to students at the University of North Carolina, Obama said keeping student interest rates low is “an economic imperative.” In a similar speech at the University of Colorado, he added that he wants America to be a nation where “everybody pays their fair share.”
Never once did the president say that he wanted to keep student-loan rates low by dipping into pension funds. But that’s exactly what’s happened. Retirees aren’t paying “their fair share”; they’re getting robbed.
Obama’s push for lower student-loan rates comes when polls show that his support among youth has faltered since 2008. Not by coincidence, he made many of his speeches on student loans in battleground states like North Carolina, Colorado and Iowa.
What has America gained by putting the pension system at risk? Not much. Student-loan debt has reached an all-time high of more than $28,000 per graduating student. But while low interest rates may help young people temporarily, low rates have a downside — they encourage students to take on even more debt. Plus, rates are still set to rise next year, after the election.
Congress and the president have done America’s retirees a great disservice. By robbing the pension fund and lowering accounting standards, the student-loan bill steals from seniors tomorrow to achieve a politically expedient goal today.
The president has made the student-loan issue a signature issue of his re-election campaign. But he never told us that lower loan rates would come at a cost to the financial security of the elderly.
Nathan Harden’s new book is “Sex & God at Yale:
Porn, Political Correctness, and a Good Education Gone Bad.” He edits The College Fix, a higher-ed news Web site.