Democrats and Republicans have created a panderfest over heavily subsidized student loans that go primarily to middle-class students, writes Rick Hess. Interests rates were cut — “temporarily” — in 2007. Now President Obama argues the lower rate should remain in force because of the tough job market.

But the debate only affects loan costs for people starting college in 2012-13, which means theyre mostly relevant for grads entering the workforce in 2017, or later. Is the President trying to tell us that he expects the job market to still be brutal in 2017?

Keeping interest rates low is “doubling down on failure,”writes Glenn Reynolds (Instapundit) in the New York Post.

His lower-rate plan would apply only to new loans, and only to loans taken out under the federal Stafford Loan program. He’s not helping previous borrowers get out from under their mountains of debt. He’s helping new borrowers build their own debt mountains.

A serious student-loan reform would link “students’ ability to borrow” to “the likelihood that they’d be able to pay” the loans back, Reynolds argues.

Right now, student loans are sold on the basis that “college” promotes higher earnings. But “college” isn’t an undifferentiated product. Some degrees — say in Electrical Engineering — increase earnings dramatically. Others — in, say, gender studies — not so much. A rational lender would be much more willing to finance the former than the latter.

Now, student debt can’t be cleared in bankruptcy. That should change, Reynolds argues. But colleges should bear some of the costs.  “Obama’s interest-rate ‘fix’ . . .  just pumps more hot air into the bubble.” Reynolds new book, The Higher Education Bubble, is due out in June.

The Story of Owe

The perils of student debt has inspired a bondage e-book, reports Kenneth Anderson on Volokh Conspiracy. Emily’s Debt posits a “very near future” in which student loan debtors are turned into slaves who can be abused with impunity.

Student loans can’t be discharged by bankruptcy. Anderson speculates that debtors will pressure politicians  to change the rules.

A generation of students — and their parents, with whom they are living — in this job market, who took what looks now to be a sucker’s bet that mostly benefited universities, has to appear politically very different to politicians.

Federal investigators looking for evidence of student aid fraud broke down the door of a family home in Stockton, California and held the father in a patrol car for six hours; the three young children were held in a car for two hours. Kenneth Wright, who has no criminal record, wasn’t charged. Apparently, his estranged and absent wife is the suspect.

The Education Department’s Office of the Inspector General, which conducted the raid, recently bought new shotguns.  Perhaps that’s why the pseudo-SWAT team didn’t just knock on the door, produce the search warrant and ask the family to stay with neighbors while the house was searched for phony loan applications.

Detroit to close half its schools

To avoid bankruptcy, Detroit will close half its public schools, letting class sizes rise to 60 students, and contract out services. The state has refused to bail out Detroit Public Schools and the legislature is considering bills that would let emergency financial managers take over cities or school districts in fnancial crisis and “toss out union contracts, dissolve school boards and set wage and benefit levels without collective bargaining,” reports the Wall Street Journal.

In Wisconsin, protesting teachers are back in school today after four days of sick-outs. Protests continue in Madison against a bill that would limit collective bargaining rights and require public-sector workers to contribute to their health and pension plans.

The budget-cutting plan was written by Robert Bobb, Detroit Public Schools’ emergency financial manager, as a desperation move if more revenue couldn’t be raised. The state education department has approved the plan and set implementation deadlines, though Bobb still hopes to raise more money.

Declining population and transfers to charters and suburban schools have cut the district’s enrollment in half since 1999.  Detroit now has 73,000 students in 142 schools; that’s expected to shrink to 58,570 students in 72 schools by 2014.  

Bobb was appointed two years ago to close a $218 million deficit in a district riddled with waste and corruption, reports the Journal.

But the deficit deepened during his tenure, weighed down by salary, pension and health-care obligations. The longtime municipal manager said that without the cuts and cost-savings measures he has made since 2009, the district would face a deficit of more than $500 million today.

Meanwhile, many of his efforts to restructure the district’s academics and finances were derailed by clashes with unions and with the elected school board, which recently won a court fight to control academics and select the next superintendent.

Bobb’s term ends soon; he’ll leave June 30. Republican Gov. Rick Snyder may appoint a successor,  “which would keep the elected board of education largely sidelined on financial matters for the near future,” reports the Journal.

 The Detroit Federation of Teachers has called for an emergency lobbying day today in Lansing to protest the legislation expanding the powers of emergency financial managers.

Detroit schools near bankruptcy

Detroit’s public schools are on the verge of bankruptcy, reports the Wall Street Journal.  District schools, already educationally bankrupt, have lost half the city’s students to charter and suburban schools. Of those who start ninth grade, only a quarter claim a diploma four years later.

As with General Motors Corp. and Chrysler LLC, bankruptcy may not be the worst thing for Detroit’s schools. A filing under Chapter 9 of the Bankruptcy Code, which covers public entities like school districts and municipalities, would allow the district to put major creditors such as textbook publishers, private bus operators and DTE Energy, the local gas-and-electric utility, in line for payment. It also would give (emergency manager Robert) Bobb broad latitude to tear up union contracts without protracted negotiations.

But a filing also could hurt the district’s debt rating and ability to float bonds.

Detroit Public Schools have lost money to corruption and mismanagement.

Bobb,  brought in to handle finances, is trying to save the system. With Barbara Byrd-Bennett, his chief academic adviser, he’s fired principals and “hired private companies to take over 17 of the district’s 22 high schools.” But it’s probably too late.

Detroit would be the first major urban district to go bankrupt, but it probably won’t be the last.