[classicman]

President Obama unveiled his new plan to “ensure students are able to commit to higher levels of federally backed student loans.”

Essentially, the president has just offered a college student bailout as the finial initiative of his “We Can’t Wait” economic plan.

Two key provisions offered in the plan (as pointed out by Business Insider):

People who hold both government-backed private sector student loans and direct loans issued by the government will be able to consolidate those debts in one government-backed loan, thereby lowering interest rates and reducing monthly payments. The administration estimates this will affect about 5.8 million people.
The plan will accelerate income-based payment programs already passed by Congress, which allow college graduates to cap their payments at 10 percent of their income, rather than the existing 15 percent cap. Under Obama’s executive rollout, the new cap, originally scheduled to take effect in 2014, will take effect in 2013 for an estimated 1.6 million students and recent graduates.

But will these provisions really come close to dealing with the nearly $1 trillion in outstanding college debt? Some reports say “not even close.”

Daniel Indiviglio of The Atlantic put together an interesting report that calculates the impact of the president’s proposals:

Consolidation: The first would clearly be the most significant [impact], because it is aimed at helping more student loan borrowers. How much would an interest rate reduction of up to 0.5 percent affect payments?

For the average borrower, the impact would be small. In 2011, Bachelor’s degree recipients graduating with debt had an average balance of $27,204, according to an analysis done by finaid.org, based on Department of Education data. That average has ballooned from just $17,646 over the past decade.

Using these values as the high and low bounds of average student debt over the last ten years, the monthly savings for the average student loan borrower would be between $4.50 and $7.75 per month. Clearly, this isn’t going to save the economy.

Payment Limits: . . . the government already has a program for borrowers to reduce their student loan payments to a ceiling of 15 percent of their income. At this time, just 450,000 borrowers are participating. Clearly, all of those participants would benefit from lowering the max payment to 10 percent. But how many others would?

Student loan balances have really only ballooned over the past decade. So this change would affect very few Americans over the age of 32. For the young adults who it may effect, we must remember that educational attainment has some correlation to income. Those with the most debt will have attended business school, medical school, or law school. Most of those people will also have higher incomes, making them ineligible.

Loan Forgiveness: Of all these parts of Obama’s executive order, the loan forgiveness aspect will have the least impact. By moving the timeline from 25 to 20 years, it could be significant in the long run — but it won’t be felt for decades. Remember, 82 percent of the current student loan debt outstanding was accrued in just the past decade. So it will be at least another 10 years before any of those borrowers have hit the 20-year mark in their student loan payments.

And outside of the fact that his proposals may have little to no economic impact, Peter Schiff of Euro Pacific capital points out that the initiative would actually cause “college tuition increases to not only continue but to accelerate,“ and that ”Obama would be turning higher education in to a third-party payer system (not too dissimilar from our current health care system – which is also characterized by outsized cost increases).”

But what does this mean to the average U.S. taxpayer? Schiff responds:

Under this new system, colleges might charge whatever they want because their customers simply turn the bill over to the U.S. taxpayer who has no say in the transaction. Under such a system what incentive would a kid have to live at home and go to a community college? Why not attend the most expensive university that taxpayer money will allow?

With all of these details taken into account, some have claimed that the introduction of this part of the president’s economic plan is little more than a shrewdly calculated attempt to “reach out to young, educated voters, a key constituency for Obama’s 2008 campaign who now form the core of the Occupy Wall Street movement.”

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Well thats a take on this plan I hadn't seen before.