In trying to contrast himself with a supposedly balky Congress, Barack Obama has rolled out the first two in a series of unilateral executive actions to “heal this economy.” The first attempted to rescue homeowners from foreclosures by refinancing mortgages that are, er, current with their payments. The second adjusted caps on student-loan payments in an effort to give college graduates more money to spend each month. More disposable cash means more spending, which in a consumer-driven economy means growth … right?
In theory, yes. But buying an extra four Slurpees a month probably won’t cut it. The Atlantic runs the numbers on Obama’s changes, and finds that Obama must have meant change literally. The most significant change announced was the ability to consolidate balances and trim the interest rates on the loans, a change that applies to all student loans, not just direct loans. So how much will this consolidation save former students? Two Starbucks lattes at best (via Instapundit):
How much would an interest rate reduction of up to 0.5% 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 byfinaid.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. While borrowers with bigger balances would save more, this is the average. And even someone with $100,000 in loans would only cut their monthly payments by $28.50.