President Obama’s proposal to keep interest rates on one type of student loans below market level obscures the fact that, if Taxmageddon strikes, the tax hike young adults entering the workforce would face would vastly outpace the savings they might enjoy from Congress continuing to subsidize their interest rates.
Taxmageddon is a massive tax hike that will strike all taxpayers—and the economy—on January 1, 2013, unless Congress and President Obama act to stop it. It is made up of a series of expiring tax policies, such as the Bush tax cuts and the payroll tax cut, and the beginning of several Obamacare tax hikes. The price tag for Taxmageddon is a whopping $494 billion in one year alone.
If Congress and President Obama fail to stop it, Taxmageddon would cost a new college graduate $1,260 in higher combined income and payroll taxes next year (assuming the average salary of new college grads of $41,701).
At the same time, if the new grad also took the maximum $5,500 Stafford student loan to pay for his senior year, and Congress continues to subsidize his rate at 3.4 percent instead of allowing that rate to rise back to the more market-oriented 6.8 percent, it would save him $110 next year (assuming a 10-year repayment window).
That’s $1,260 taken out of his right pocket by Taxmageddon and $110 stuffed back into his left by Congress and President Obama continuing to subsidize his student loan.
Taxmageddon would cost a college graduate 11-and-a-half times more than the lower student loan rate will save him. And only the approximate 7.7 million students that take out subsidized Stafford loans would benefit at all from the continued subsidized rate. But every single student that enters the workforce—nearly 21 million students are enrolled in postsecondary education today—will bear the burden of the Taxmageddon tax increase.
Despite the disproportionate pain that Taxmageddon would inflict, President Obama is focusing his attention on the student loan interest rate and ignoring Taxmageddon.
Students shouldn’t be fooled or distracted by President Obama’s hide-the-ball trick when it comes to Taxmageddon. They should be telling him at commencement addresses and campaign rallies he holds at their schools to stop Taxmageddon now.