Elizabeth Warren: Students Should Get the Same Rate as the Bankers

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Consumer protection maven Sen. Elizabeth Warren, D-Mass., introduced her first piece of legislation this week, a proposal that would allow students to take out government educational loans at the same rate that big banks pay to borrow from the federal government.

Under her Bank on Student Loans Fairness Act, for one year, new student borrowers would be able to take out a federally subsidized Stafford loan at 0.75%, compared with the current 3.4% student loan rate. “Let’s give [students] the same great deal that the banks get,” Warren said, introducing her legislation on the Senate floor on Wednesday.

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Her legislation is well-timed as Congress gears up to debate student loan rates, which are set to double on July 1. Unless legislators vote to extend the 3.4% rate for another year, some eight million students will be forced to pay back their loans plus 6.8% in annual interest. The average student loan borrower now graduates with a record-high $26,000 in debt. Nationwide, student debt has outpaced credit-card debt, as borrowers struggle to pay back a collective $1 trillion in debt.

According to Warren, the federal government makes an average of 36 cents for every dollar it lends to students. As a result, this year, the government will make some $34 billion from students making payments. “We shouldn’t be profiting from our students who are drowning in debt, while giving a great deal to the banks,” she said. “That’s just wrong.”

The great deal Warren referred is the Federal Reserve’s “discount window” that banks like Goldman Sachs and J.P. Morgan Chase use to borrow money from the government, generally overnight and generally secured by assets. The rate is so low in part because there’s very little risk the loans won’t be repaid.

Advocating against charging students nine times what banks pay is likely to win Warren some popular support, but that doesn’t mean the proposal is likely to make it through Congress.

(MOREViewpoint: Stop Calling Student Loans a “Bubble”!)

40 comments
rudyiacono
rudyiacono

We are at the brink of financial collapse and moving at that end sooner than anyone can realize.


Our economy is being sustained only by big corporations and banks who have both benefited from the Fed policy of printing money and dispersing it like a monopoly game.


WS has benefited greatly while senior citizens living on minimal fixed incomes suffer so that major corporations and big banks prosper from each other all the while with mere social security pittance increases and inflation running amok and young adults can not contribute to helping our economy grow as they are strangled with huge college debts and face poor educational prospects as our country is producing only an average of 200,000 jobs per month of which are mostly for service sector employment not what I would call an encouraging economic indicator.


One of the main problems that our students face are the educational institutions themselves as they are in cahoots with big banks and most of their endowments are managed by these same crooks who defrauded the American public during our most recent financial collapse.


The world right now is a very scary place and I will say that a world crisis of insurmountable proportions is in our mist.


Argentina is one of the recent failures of which its ramifications are still yet to be fully realized and Portugal will also soon collapse as well as Spain and other European countries which are at the mercy of Germany who dictate what can and can't be done to its fellow European brethren.


It is amazing to read such non-sense about punishing the youth of our country and for what might I add?



We as a country should never try to profit from our youth and must take a more conscious effort to create a more balanced approach to how our educational institutions and our country can better serve our economic future. Surely defense and agrarian industries have benefited the most and we must now try to reinvent America and move into a direction that will help our infrastructure through the creation of new technologies that can be applied to rebuilding our infrastructure and improving our quality of life through medical and scientific advancements. Unfortunately our country has relied too heavily upon lawyers in the senate and congress making all the rules and we must seek out new leaders who truly want to reshape America without having to bankrupt the youth of America. We have too many educational institutions that have not adapted to the new world economy and it is their unwillingness to change which is the most inherent problem that our youths face as their unwillingness to change is what is creating a hopeless financial burden for our youths.

anthony1429
anthony1429

There are solutions. We have just accepted that loans need to be made through commercial banks and now our government steps in  makes profits even larger Exxon -Mobile $54-$56 Billion so imagine what the banks are making.  education should not be a profit center  please read my blog google ProjectTuitionReimbursement    I promise you there are real solutions

Onepatriot
Onepatriot

It 's not about whether the government should play a role in this or not.  Of course  government must support higher education for the students to provide our country the work force it needs and our society, the professionals it needs.  We simply can't allow the banks to dictate the terms..This is more than a business decision. and the banks are just being greedy. 

That said, the rules for these loans must be tightened.  We can't allow students to use low rate loans as a crutch to stay in schools when they don't really know what they want to do. There has to be more career counseling, a goal planned and a clear course of action to achieve that goal, with  grades and effort, showing the commitment from the student..  Maybe restrict the loans to basic beginning course requirements only for the first two years.  Then the more advanced courses after they show ability.

rdgtalk
rdgtalk

I have a better idea. Since we're apparently going to give away so many of our university student seats to rich foreigners, let's charge them enough to pay the full tuition of the American students.

Travon
Travon

Let the taxpayers pay for the education? Like PAY IT FORWARD. Vivek Sood mentioned in his book The 5-Star Business Networks that innovation is important for business and I believe this is applicable to everything. Please do something with the Student loans. You can produce a lot of ways, you guys are powerful 

JamesM.Gilbert
JamesM.Gilbert

OPTION A: Let banks profit big from student loans and make it hard for students to repay back the loans

OPTION B: Make Student Loans affordable so students can repay 

OPTION C: Have the Fed TREAT BANKS the way They  treat Students


Why is it that so many ignorant republicans would object to Option C  and B  but not A  ????

smjhunt
smjhunt

On the surface seems like a good idea.  However, because these loans are government guaranteed, such a change plays right into the hands of those who make a living gaming the education system for their own profit at the expense of the students just like banks did  to home buyers a while back.

To understand this, think about a loan like a car loan where there is no government guarantee. The reason a car dealer can't charge double the cost of the car for those who must take out a loan is because the banks won't lend it due to the risk being too high (the loan amount is much greater than the money they would get if they repossessed and sold the car).  However if the government guaranteed the  loan, there would  no longer be anything to limit what gets charged.  If the government guaranteed car loans, overnight, the amount the dealers charged would go way up because now the banks would have no trouble lending the money no matter how much more the loan was than the cost of the car because they aren't actually taking any risk any more.  If the borrower defaults, the government will make up their losses.


Unfortunately, the education business has now filled up with people gaming the system the same way the brokers gamed the housing market issuing loans for outrageous amounts that the buyer could never pay back because the government will guarantee them and thus there is no risk to the lenders.  That is one of the major reasons tuitions are so high today. 


With cars, if the government were going to guarantee them, they could at least safeguard against the gamers by requiring the borrower to meet standard credit requirements and limiting the loan to the sticker price of the car.   However, loans for education are basically intangible and students often don't have much of a credit history so whose to judge how much they can charge for education ?  Let's say I'm a small college X and I would like to get a lot of money so I declare that the cost of an English degree is 100,000.   If the student's could only pay cash, all I would get would be a handful of rich people.  Everyone else would say they couldn't afford it.  But what if I could say, you don't need any money, we'll get you a loan for 100,000.  Some students and their parents would probably view this suspiciously but with every college playing the same game, they may have little choice.  Now technically they can afford it because they need only afford the monthly payments.  Eventually they graduate and discover there's no way they'll be able to pay it off and stop making payments.  Then the government will step in and pay back the bank and the school gets to keep its money so there's no incentive for either of them to make the cost of the English degree realistic or to cut their own costs. 




firmsoil
firmsoil

Erratum: "Banksters" not "Bankers".

TAZTlh
TAZTlh

Senator Warren save us from the Big Banks.  And this bill will help our future generation not be slaves to those banks.

Subprimemortgag
Subprimemortgag

The Federal Reserve’s “discount window” rate is so low not because there is little risk the loans won’t be repaid by the banks, it is because everybody knows that banks will be bailed out by students and other taxpayers if they fail.  

It is immoral to try to make a profit from student loans.  Preparing students should be seen as an investment in the future economy, returns should be made at that moment, not immediate profit seeking from students.  This is not socialism, it is called thinking long term.

 

VerbalKarate
VerbalKarate

Typical politician response- let's propose something that sounds good but actually serves our Masters. How about addressing the problem of putting kids in extreme debt to get an education? The primary thing such a law would do is give colleges and universities more incentive to raise tuition even faster.

j.villain1
j.villain1

There is very little risk the loans won't be paid back? Is alzhiemers the norm now?  Most of the banks had to be bailed out just a few years ago. The reason? The bogus loans they were making. Lets be honest. If the banks were such a low risk they could go to the bond market and borrow at that rate. This is nothing but a subsidy for some of the wealthiest people in the world.

lorac58ab
lorac58ab

cap all student loans at 2%. freeze interest during periods of unemployment. the monthly payback amounts for some are the equivalent of mortgage payments. having that kind of debt is just demoralizing especially when the search for employment  which would allow significant repayment remains stagnant.

flamingpanties
flamingpanties

I agree, senator. It's all well and good. However, many universities with top heavy administration and high salaries paid to tenured professors, will grab at those saved bucks by raising tuition.

Sherm
Sherm

Sorry, Elizabeth, but interest rates are based on risk.  Don't they teach Economics at Harvard?

DBritt
DBritt

Elizabeth Warren is such a boss.  Every time I turn around it's another great idea.  You want to invest in economic growth?  Invest in education.

nstaley401
nstaley401

Go to your home state college if your worried about loans...

seizeabe
seizeabe

This is an investment for the future of America.Students who would need college tuition fee loans are those who are from truly struggling families. Sen. Elizabeth Warren's bill will mean the difference of many students abandoning the idea of going to college or their families being devastated.When he 2008 crisis happened, insurance, banking and financial companies received bailouts, that would have crushed the otherwise extremely wealthy. Congress and the president had no second thoughts to provide that relief. And, some of those organizations even profited out of that bailout, by doling out bonuses to top executives, while firing lower employees.Now, when students need affordable loans for their college tuition fees, hope the same consideration congress showed the ultra rich, will be given to the needy students and their families.Sen. Elizabeth Warren's bill is an intellectual, personal, financial and investment opportunity for America's future, livelihood of American families and hope for those students to make a stronger career and future with education.

seizeabe
seizeabe

This is an investment for the future of America.

Students who would need college tuition fee loans are those who are from truly struggling families. Sen. Elizabeth Warren's bill will mean the difference of many students abandoning the idea of going to college or their families being devastated.

When he 2008 crisis happened, insurance, banking and financial companies received bailouts, that would have crushed the otherwise extremely wealthy. Congress and the president had no second thoughts to provide that relief. And, some of those organizations even profited out of that bailout, by doling out bonuses to top executives, while firing lower employees.

Now, when students need ford able loans for their college tuition fees, hope the same consideration congress showed the ultra rich, will be given to the needy students and their families.

Sen. Elizabeth Warren's bill is an intellectual, personal, financial and investment opportunity for America's future, livelihood of American families and hope for those students to make a stronger career and future with education.

chacalcdn
chacalcdn

I fully agree and furthermore I suggest that as the big Wall street Cats did students should then defaut and like BIG banks should be saved by the government at no cost to them.


Innocentious
Innocentious

Hey why not make it so people get loans on mortgages at the same rate as banks too? Or hey how about we allow personal lines of credit to be at the same rate as well? The answer, BECAUSE the entire point of the low rates right now to banks is to prime the pump for the economy and these loans to banks are REALLY low and already distorting the market place and VERY inflationary ( I am NOT talking CPI which is a different kind of inflation )

JohnBailo
JohnBailo

Very low risk?   Banks failed to the tune of trillions!  A bunch of people getting comp lit degrees have a lower chance of cutting and running!

KarNels
KarNels

While school districts were trapped in exploding rate products and Jefferson County in AL is bankrupted by Wall Street, the Fed "prints" digital dollars for them, our currency, so they can speculate and pillage, running up costs for regular Americans. Shouldn't a state, city, county, school districts with massive assets be allowed low interest loans from Fed also? Why do private, big banks that act in predatory manner, continue to illegally forclose

KarNels
KarNels

Author saying that advocating for this will likely win Warren popular support but it won't pass through Congress is a perfect, no doubt accidental, sum up of our politics these days: our government doesn't work to deliver what the people want, what the people see as good for the common wealth, instead it is owned by Wall Street, and serves their narrow interests.

Warren is one of the few willing to use her bully pulpit of a Senate seat to consistently advocate for the interests of the vast majority of us, regular people and families, and to resist bending to the will of the big banks, Wall Street.

While school districts in California were trapped in exploding interest rate products

BruceStrong
BruceStrong

Ask not what taxes you can raise on others, ask what taxes you can raise on yourself. Do not ask others to sacrifice without first YOUR sacrifice.  Stop blaming others, pick yourself up and look for a helping hand at the end of YOUR VERY OWN ARM!

thepolishbandit
thepolishbandit

@JamesM.Gilbert  Interest rates are determined by RISK.  You can't offer free credit to high risk borrowers.  We did this already in the housing debacle. "LEt EVERYONE have housing..its their right!" We lent loans to people who could never pay them back at cheap rates, and led to the subprime debacle in 2008. And you want to do it again? 


Why can't liberals understand MARKET ECONOMICS??? Free money to high rish borrowers doesnt work.  

KarMaki
KarMaki

This was a reply posted at the not so informative blogspot mentioned above:   As opposed to delineating "ALL" the facts of the proposed bill and then describing how each point is detrimental or not beneficial to society as a whole, you focus on one single aspect of the bill and fill your reasoning with insults, name-calling, misinformation, and rhetoric. Contrary to your contention, the students MUST pay back the loans come "hell or high water" (you cannot absolve it even through bankruptcy) thus your notion that the risk for such debt is higher than those to banks that have operated recklessly and required "taxpayer" bailout to be "alive" today is without logic and proper reasoning.  The bill is meant to be beneficial to both sides:  1) the students pay BACK what was borrowed; and 2) the principal on the loan is paid to the lender with a less exorbitant interest amount.

Sherm
Sherm

@DBritt Investing in education is great, but offering subsidized student loans just encourages schools to raise tuition.  It's a viscous cycle that does not benefit the students.

notLostInSpace
notLostInSpace

@nstaley401  My home state colleges are not that cheap and not that good with one exception, which two of my kids were not accepted at (and they are good students, but this school I speak of has become exclusive).  If you have to go to a crappy school you are not much better off than not going at all....hence the loans become somewhat mandatory.  I agree with other posts that the schools really take advantage of this, they raise their prices 10-15% a year (who else has that kind of inflation?) knowing the payments are coming from money that is easy to get but hard to pay back.

schnealy
schnealy

And just hope you are poor enough to qualify for Pell Grants.

vestafaire
vestafaire

@chacalcdn 

Can't default anymore. It will never go away.  Not through bankruptcy, not even death stops collectors from going after unpaid student loans.   Not that this is a great idea anyway. But here's the thing, if the interest rate were better, we could pay them off! I pay 7.5%, which started accruing the moment I graduated. I only become in a position to be able to eat, have a roof over my head and pay student loans 7 years after graduating, so the compound interest on $30g has made it so after paying for 10 years, while I paid 3/4 of what I originally borrowed. I have barely dented my student loans.  It keeps me from putting money into my local economy.  My husband and I pay $600 a month to student loans. Gone. All gone, just so the bank which loaned me the money and was federally mandated that I never be able to lose it without repaying it can charge me 7%. It's ashame!!

Da'udMaud'dib
Da'udMaud'dib

@JohnBailo, did these failed banks default on their government loans?  I don't remember that part. 

vestafaire
vestafaire

@BruceStrong You seem to be missing a series of facts that might let you intelligently comment on this subject, Strong.  First, student loans are like a virus,  and the only way to cure it is to pay it off- after years and years of higher than average loan interest- and then it goes away. You can't get rid of them through bankruptcy, or even mind you, DEATH. Yes, your parents, aunts and even cousins can be liable for your student loans if you die before paying them off.  I have paid for the money I borrowed already, but it is a small dent in the amount they say I owe them, plus interest for the rest of my freakin' life. I will be paying for my kids college and my college at the same time.  If I could get a better rate, I would simply be in a better financial position. Why is that bad for America?   College rates have risen 450% since 1980, if we want an educated work force, the only way to ensure a healthy economy btw, we need to fix this problem.  And your "do it yourself" theory  is exactly what I was doing when i went to college!!

DBritt
DBritt

@Sherm Do you happen to have a reference for that?  I'd be curious to know about it.  I'd be pretty surprised if the rebound effect is as large as the first order effect.  But I've been surprised before.

jazzman47
jazzman47

What guarantee is there that regardless of the rate the loan will be repaid. Many students, my son included who hunted for a job for 18 months after graduation, only pay the interest due and not anything towards principal. What are you willing to guarantee?

Sherm
Sherm

@DBritt @Sherm Check the WSJ site.  They've run several op ed pieces on the relationship between tuition hikes and subsidized student loans.