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Elizabeth Warren and “Bank on Student Loans Fairness Act”

BankOnStudentLoanGraphicViaElizabethWarren

Sen. Elizabeth Warren (D-Massachusetts) has introduced the “Bank on Student Loans Fairness Act,” as reported at, among other places, HuffPo.

From Warren’s web site, excerpts from the Fact Sheet for the bill:

The interest rate on federal subsidized Stafford loans is set to increase from 3.4 to 6.8 percent on July 1. …

Student loan debt is a growing crisis, and it threatens our economic recovery. Outstanding student loans now total more than $1 trillion, surpassing total credit card debt. Last month, the Federal Reserve identified this mounting debt as a risk to household spending. …

While borrowers struggle to repay their debt, the federal government is making money on its student loan programs. This year, the federal government will make $34 billion on student loans. … If Congress allows the interest rate on these loans to double, the federal government will bring in even more revenue — money that comes straight from the pockets of college students.
Some argue that it’s too expensive to keep government loans at low interest rates, but the federal government makes low-interest loans all the time — just not to everyone. Big banks can borrow money from the Federal Reserve with an interest rate of less than 1 percent. … .

… The Act would provide a one-year fix to the impending interest rate hike by setting the rate for federal subsidized Stafford loans at the primary interest rate offered through the Federal Reserve discount window as of July 1, 2013. …

Notice, this is a “one-year fix,” not a permanent change, and apparently for new loans only. That doesn’t mean it isn’t a good idea, but in reading about various responses to the bill, these restrictions do seem to get missed fairly often. It’s a limited response, but of course, taking incremental steps is not unusual in DC. It’s often the only way to make progress.

Some thoughts from others, beginning with Caroline Fairchild, at Huffington:

… Warren … is by no means alone in her belief that the U.S. government should give college students the big-bank treatment.

More than 250,000 MoveOn.org members have signed a petition demanding Congress set student loan interest rates at the same level as that offered to big banks by the Federal Reserve … .

At Nation of Change, Robert Scheer:

The student loan interest rate that had been temporarily cut in half back in 2007 was once again set to double, but instead of pushing for the status quo as Congress did last year, Warren has upped the ante with legislation that would cut the student loan rate way down to the near zero that the big banks enjoy.

From a critical perspective, Mandi Woodruff, at Business Insider:

The bill would only apply to NEW borrowers and even then, the discount window only lasts for a year … .

We’re already in a $1 trillion student debt hole and today’s graduates are entering a less-than-stellar job market with an average $26,000 worth of student loan debt. We bet they would appreciate a break on interest rates, too.

Another critical analysis from Erin Lahman, at Policy Mic:

The problem with this bill is that it’s repeating the same failed policies of minimizing lender risk through taxpayer subsidies while keeping interest rates artificially low to encourage more loans.

Some context, as you consider the various analyses. Shahien Nasiripour at HuffPo:

The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation’s most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets. …

The Education Department has generated nearly $120 billion in profit off student borrowers over the last five fiscal years, budget documents show … .

The new profit prediction comes as Washington policymakers increasingly focus on soaring student debt levels and the record relative interest rates that borrowers pay as a potential impediment to economic growth.

At TruthOut, Isaiah Poole writes: (emphasis added)

This rising student loan debt is directly related to sharp increases in college tuition well in excess of inflation and a 25-year-low in state and local spending on college education. Robert Reich, former secretary of labor during the Clinton administration, recently compared student loan debt to the housing crisis, predicting that it is a bubble that will soon burst.

Similarly, economist Joseph E. Stiglitz described college debt as ‘a crisis that is about to break out’ in a column in The New York Times … .

Without more help from the government, students and the economy will continue to flounder in the face of bleak opportunity. Warren’s bill to lock in the same rock-bottom interest rates — 0.75 percent — for students that big banks receive is only one slice of what has to be a comprehensive plan to rebuild the economy so that it works for all of the young people trying to grab onto and climb the economic ladder. But it is an eminently reasonable key step.

Warren is actually doing something that would help some people — the real ones, not the “corporations are people” people. I’d like it to be a bigger step that helped all those who are already struggling with student loans, but hopefully that would follow. Whatever, July 1 isn’t very far off, and Electeds will make some kind of decision by then.

(Bank on Student Loan graphic via Elizabeth Warren)

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8 Responses to Elizabeth Warren and “Bank on Student Loans Fairness Act”

  1. fangio May 17, 2013 at 4:42 pm #

    Warren has been somewhat of a disappointment. First she voted against the tax on medical equipment which was to fund the uninsured in Obamacare. Of course there are many of these manufacturers in her state; what else is knew. Now this. We don’t want loans, we want grants! Students need to learn, not worry about debt. Isn’t it surprising that Mr. Obama ( the people person ) is making more off student suffering than he is off Apple with their pile of money hidden overseas. I sure am glad we don’t live in some banana republic where only the rich get an education.

    • Joyce Arnold May 17, 2013 at 6:03 pm #

      I’m guessing the “profit” being made will surprise a lot of people, and it certainly gives reasons for some serious questions about this whole thing.

      I wish the U.S. could see post-secondary education like some other nations, as something that will benefit students and nation as a whole. But just as efforts to privatize schools, pre-K through high school, are being pushed, getting the college education seems to be more and more treated like a product, kind of like health care.

      I’m glad Warren is trying something, even if too limited. But absolutely, we need much more to happen.

  2. Cujo359 May 17, 2013 at 5:08 pm #

    “It’s a limited response, but of course, taking incremental steps is not unusual in DC. It’s often the only way to make progress.”

    Very limited, I’d say. When will they make student loans on par with other debt – forgivable in case of bankruptcy, for instance? Plus, why not increase grants for college? Making them contingent on grades should make sure grants aren’t used for trivial reasons. Our current system is nuts, and the faster it changes the better.

    • Joyce Arnold May 17, 2013 at 6:05 pm #

      I have mixed feelings, Cujo, as I’m sure comes through. I do think the bill would help some people, and so it’s worth something. But I don’t disagree with you at all, that the “current system is nuts.”

      • Cujo359 May 18, 2013 at 3:38 pm #

        Yes, this is worth something, and only a fool would expect everything to be fixed at once. Still, in our political environment, being satisfied with an improvement is a good way of ensuring there are no more.

        On the plus side, at least this bill is not (yet) a case of a small improvement paid for with a whole lot of things that make the situation worse, as the ACA was.

        • Joyce Arnold May 18, 2013 at 8:55 pm #

          That’s the scary / sad part, yes. Or one of them — that so often We the People do seem to be satisfied with the bits and pieces approach. And that does, I agree, contribute to the difficulties in getting more done.

          I think, as I know I keep saying, that the kind of changes needed are going to require efforts from within the System, and from without. That “without” work seems to be very difficult for some, maybe many, people working “within” to understand.

          I always appreciate your thoughts. Thinking together about some of this stuff is very helpful.

  3. Taylor Marsh May 17, 2013 at 5:57 pm #

    Good for you, Joyce, for seeing a glass half full in an absolutely arid atmosphere.

    • Joyce Arnold May 17, 2013 at 6:05 pm #

      Well, maybe 1/4 full … but compared to “arid,” that’s something :)

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