Senator: Students Should Get Same Loan Rate as Banks (0.75%)

Senator: Students Should Get Same Loan Rate as Banks (0.75%)Democratic Sen. Elizabeth Warren is quickly building on her pre-Senate reputation as a consumer advocate, with a bill she introduced Wednesday that pegs a federal student-loan rate to the Federal Reserve discount provided to the biggest banks.
That discount rate is currently at 0.75 percent.
Far-fetched? Not to Warren, the freshman Senator from Massachusetts who has taken bank regulators to task for messing up foreclosure reviews, and not to the more than 7 million college students who would be affected.
On July 1, the low 3.4 percent rate on federally-subsidized Stafford loans is set to double, unless Congress acts again to extend the rate, as it did last year. But on this non-election year, the outlook is bleaker for an extension.
Even President Obama has not necessarily proposed an extension, but a new policy that would align federal student loans to market indicators, such as Treasury notes, which are also currently very low. But there is no guarantee that those rates will stay low.
Obama’s budget proposes a “cost-neutral reform” to set interest rates so they more closely follow market rates, and to provide students “with more affordable repayment options.”
In sharp contrast, big banks get a huge discount when borrowing from the central bank, a rate currently below 1 percent. During times of deep economic malaise, the Fed injects liquidity into the banking system at near-zero rates as it has done since the financial crisis.
Warren, speaking from the Senate floor today as she introduced her bill:
“Right now, a big bank can get a loan through the Federal Reserve discount window at a rate of about 0.75 percent. But this summer a student who is trying to get a loan to go to college will pay almost 7 percent. 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.”
According to the Project on Student Debt, college students who graduated in 2011 owed more than $26,000 in student loans.
Research by the Federal Reserve Bank of New York has found that student loan debt of Americans under the age of 25 has doubled in less than a decade, from $10,649 in 2003 to $20,326 in 2012.
The proposed legislation, Bank on Students Loan Fairness Act, is Warren’s first stand-alone bill.

One thought on “Senator: Students Should Get Same Loan Rate as Banks (0.75%)

  • May 11, 2013 at 12:15 am

    Hold the phone. Am I agreeing with Senator Pocahontas here?! Yes, but wasn’t the time to do this when the government assumed the debts and before selling these off to groups like Aspire Resources?

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