There was an interesting political fight last summer over student loans that the White House took very seriously. At issue was a 2007 law, that was set to expire, which kept the interest rate for federal Direct Stafford Loans at 3.4%. Without intervention, the rate would have doubled, affecting more than 7.4 million students, who would have faced, on average, an additional $1,000 in debt.
Eventually, policymakers worked out a deal, and the lower rate remained in place, but it was temporary — on July 1 of this year, the rates are set to double again.
As Joan McCarter noted yesterday, Sen. Elizabeth Warren (D-Mass.), in the first bill on which she is the lead sponsor, has a plan to prevent that from happening. But what makes this interesting is how the Massachusetts Democrat intends to address the issue. For those who can’t watch clips online, here’s what Warren said when introducing her “Bank on Students Loan Fairness Act.”
“Some people say that we can’t afford to help our kids through school by keeping student loan interest rates low. But right now, as I speak, the federal government offers far lower interest rates on loans, every single day — they just don’t do it for everyone.
“Right now, a big bank can get a loan through the Federal Reserve discount window at a rate of about 0.75%. But this summer a student who is trying to get a loan to go to college will pay almost 7%.
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“In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks — the same banks that destroyed millions of jobs and nearly broke this economy.”
Warren proposes allowing eligible students to borrow at the same rate that big banks get through the Federal Reserve discount window. She added, “For one year, the Federal Reserve would make funds available to the Department of Education to make loans to students at the same low rate offered to the big banks. This will give students relief from high interest rates while giving Congress time to find a long-term solution.”
This might be a tough sell to Republicans. Not only have GOP lawmakers become increasingly hostile towards any kind of federal student aid in recent years, but House Majority Leader Eric Cantor (R-Va.) has already said he wants a “market-based” solution to the looming rate hike.
Still, it’s likely to be a pretty significant fight in June, and Warren’s bill is well worth watching.
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