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.
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.