On July 1st, the interest rate on new, federally subsidized student loans doubled from 3.4 to 6.8 percent. Because Congress failed to act, low income students are now paying twice as much in interest on these loans.
At a time when borrowers are already carrying $1 trillion in student loan debt, surpassing total credit card debt and eclipsing all other forms of household debt except home mortgages, this is just bad economics.
The Federal Reserve warned in March that student loan debt threatens America’s economic recovery. The mounting debt is a risk to household spending. The burden of loans keeps borrowers from buying homes, saving for retirement, and engaging in consumption that will keep our economy on the road to recovery. It’s bad for our long-term prospects. Our economy’s stability depends on having a highly skilled workforce, and keeping low interest rates is essential.
And while students are paying more, the federal government is boosting its profits. According to the Congressional Budget Office it will rake in 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.
Republicans have repeatedly blocked efforts to pass a short-term fix that would retroactively save students from higher interest rates. But Elizabeth Warren, has not given up, and has continued to garner support in sponsorship of her bill requiring federal student loan interest rates to match the rates given to banks.
More than 1,000 college professors from 568 higher education institutions around the country have signed a letter calling on Congress to pass legislation authored by Sen. Elizabeth Warren (D-Mass.) that would dramatically lower interest rates on federal student loans.
“Right now as I speak the federal government offers far lower interest rates for loans every single day. They just don’t do it for everyone. Right now the Big Bank can get a loan through the Federal Reserve discount window at a rate of about three quarters of one percent. But this summer a student who’s trying to get a loan to go to college will pay almost seven percent. In other words, the federal government is going to charge interest rates nine times higher than the rate they charge the biggest banks. The same banks that destroyed millions of jobs and nearly broke the economy. That isn’t right. And that’s why I’m introducing legislation today to give students the same deal that we give the banks.”
Warren’s legislation, called the Bank On Student Loan Fairness Act, will mandate that the Federal Reserve work to provide funds for the Department of Education to provide the same rates that it provides to Big Banks for a period of one year while Congress works on a long-term solution.
Under her plan, the rate on government-issued student loans would fall from 6.8 percent to 0.75 percent, saving students thousands over the life of their loans.
“I see that students are much more concerned about the economics of their college experience than in the academics of late,” said Vicki Cassman, anthropology professor at the University of Delaware, explaining why she supports Warren’s bill. “This added stress often translates into skimping on classes, or taking more credits in a semester than they can handle, or not purchasing necessary textbooks or meals. If we can help Wall Street, surely we can help college students!”
Watch Sen. Warren Introduce the Bank On Students Loan Fairness Act: