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)