WBUR

Sen. Warren’s Student Loan Bill Draws Support, Scorn

BOSTON — Student loan debt in the U.S. recently hit a new high of $1 trillion. That’s a drag on young people’s finances and, according to the Federal Reserve, it’s a drag on the economy, too. Action this week on Capitol Hill could make a big difference in the growth of that debt load, as interest rates on new Stafford Loans — government subsidized, need-based student loans — are set to double July 1.

A proposal to freeze those rates could come to a Hill vote this week. And Massachusetts U.S. Sen. Elizabeth Warren is pushing her own stopgap measure that would radically reduce interest rates for one year. It’s the first piece of legislation she’s introduced since being elected last November, and while it’s drawing some support, it’s also attracted scorn.

Bank On Students Loan Fairness Act

Twenty-one-year-old Diamond Reddick of Boston faces a choice Sen. Warren says should be easier. Talking with an adviser at a student loan assistance center at the Boston Public Library, Reddick says that to enroll in her preferred occupational therapy program next year she’d need loans and grants worth up to $20,000 a year.

The decision, she says, will affect not only her own pocketbook, but her mother’s and sister’s as well.

“We can’t afford to really go to a school that I want to go to, so I have to put everyone into the situation when making the decision, which makes it hard, but it’s what I have to do,” Reddick said.

It could get a lot harder if Congress doesn’t act now: Interest rates on federally subsidized Stafford Loans are set to double on July 1 to 6.8 percent. President Obama is proposing a fix. House Republicans have a plan. And Sen. Warren does, too.

The Bank on Students Loan Fairness Act is the only bill Warren has submitted since her election last year. She pitched it at a recent meeting of education leaders in Boston.

“[Sen. Warren's bill] has a nice ring to it if you don’t know anything about how interest rates work.”
– Matthew Chingos, Brookings Institution fellow

“There’s data now suggesting that young people are delaying buying homes,” Warren said. “Families are crushed by student loan debt and this means they can’t support an economic recovery.”

Warren says a long-term solution will have to wait. As a stopgap for the next fiscal year, she wants the interest rate on new loans for lower-income students rolled back to the same discounted rate the Fed offers big banks for so-called “overnight” loans — 0.75 percent.

The comparison fits neatly with the kind of populist rhetoric Warren used in her campaign — contrasting the needs of the poor and middle class with perks for the “fat cats” of the U.S. economy.

“These are the same banks that cost millions of Americans their jobs and nearly broke the economy,” Warren said this week in a conference call that MoveOn.org says drew more than 10,000 listeners. “And a student who takes out a loan later this summer, if Congress doesn’t act, will have to pay nine times as much on her debt as big banks would. It isn’t right, it isn’t fair, and it isn’t good economic policy.”

Nearly 450,000 people have signed a MoveOn petition in support for Warren’s bill. But conservatives are panning it. And the Brookings Institution, a centrist think tank, is calling it “a cheap political gimmick.”

“I think it is entirely symbolic,” said Brookings fellow Matthew Chingos. He and other critics say Warren is comparing apples to oranges — low-risk banks taking short-term loans, versus high-risk students getting long-term aid.

“Perhaps, though, it’s what a lot of her constituents want to see,” Chingos added. “And it has a nice ring to it if you don’t know anything about how interest rates work.”

According to Tufts University political science professor Jeff Berry, Warren is veering slightly from the freshman senator’s traditional mantra: Keep your head down. But Warren gets respect in the Senate, he says, because of her ties to the White House, her public reputation as a financial watchdog and her proven fundraising ability.

And she’s made a savvy choice on the issue, Berry adds.

“Given that Massachusetts has so many college students and so many universities, it’s a natural position for a liberal Democrat to push on this issue because it’s going to resonate with the voters and it’s going to raise her profile with people that could vote for her for decades,” Berry said.

Even supporters of the Warren bill say it’s not likely to see a vote. But she’s also signed on to a more likely vehicle co-sponsored by Senate Majority Leader Harry Reid. It’s a two-year fix that would freeze rates at the current 3.4 percent. Votes on that are expected as early as Wednesday.

Whatever temporary solution emerges, Warren has put down a marker for debate next year, when broad higher education legislation is up for reauthorization.

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  • http://nellewrites.net nelle

    Matthew, it isn’t just low vs high risk… it is about what society wishes to encourage and facilitate.

    • dust truck

      Matthew is making a lot of assumptions anyway, “— low-risk banks taking short-term loans, versus high-risk students getting long-term aid.” The only reason the banks’ loans are “low-risk” is because the government MADE them low risk. I’m sure student loans could be “low-risk” too if the government said they were too big to fail.

    • Jasoturner

      Actually, it’s about what the wealthy and powerful want to encourage and facilitate. And that is maintaining and growing their net worth. Higher rates are good for them as investors, and irrelevant to them personally when their own kids go to college.

      In America, it’s always “follow the money”.

    • pato

      bingo. Interest rates are not really a reflection of some risk reward calculation. That would imply a free market which does not really exist anymore, at least in the banking industry. Mortgage rates were manipulated down by the Fed in order to stimulate the economy. If the Fed or the Federal Government decide educational loans will stimulate the economy then they would and could lower interest rates.

      But actually there is concern amongst policy makers that there is an education bubble, so that some don’t support lower rates for all student loan borrowers.

      • http://nellewrites.net nelle

        Yes, from an economic standpoint. However, there is no downside to more education overall, even if there might not be economic justification. As a society, we are better off with a better educated populace.

  • jefe68

    Low risk banks? Does Matthew Chingos think that Bank of America, Citicorp,
    and Well Fargo are low risk? Being that they were knee deep in the largest downturn since the Great Depression, and along with other investment banks such a Morgan Stanley and JP Morgan, nearly took down the entire world economy, one would think the term low risk is a tad simplistic.

    • Jasoturner

      Ideologue = propaganda. Ergo, low risk banks.

  • Jasoturner

    Let us await the first post that points out that Warren earned a six figure salary at Harvard and that everything she says about the economy and the non-wealthy must therefore be fraudulent.

  • YesMan

    “Brookings fellow” = professional liar
    … yet the media continues to go to them as if the public cares about their propaganda.

  • jefe68

    Given that student loans can never be forgiven, even after the student dies, the idea of it being a a high risk loan seems to be misplaced.

    Right now I can get loan for a car at about 2.75 to 3% and a home loan from 3 to 4%. Those are higher risk loans than a student loan and yet the interest rate is 3 or more points lower.

    Something is not quite right about this mess.

  • Hamilto Bergeran

    its a racket

  • Marly

    Bottom line is that student loan borrowers should do what they can to reduce the amount they owe asap before rates go up. You can do this on your own, or get help. A fabulous student loan refinance and consolidation company in South Florida can help. They can be reached by calling 866-203-5312.

  • http://www.facebook.com/seantpainter Sean Painter

    High risk student loans? Student loans cannot be discharged through bankruptcy, so unless they are forgiven by the US Government or Lending Institution, then you have to pay them back.

  • Flying Goat

    That headline was ambiguous… And here I was hoping to learn about Warren’s remain student loan debt (“bill”).

  • CComry

    You borrow money, you pay it back. If you don’t, then you get to live with the consequences. Everyone should know the exact terms of the money they borrow. I have very little sympathy.

    P.S. I didn’t have the money to go to the college I wanted, and I refused to go into debt, so I joined the Coast Guard. I earned it, as everyone in this country should.

    • pjchooch

      So, wealthy people go to college, but poor people go into the military. Sounds like a great solution.

      • CComry

        Who said I was poor? Stop with the class warfare crap. Life isn’t fair and the playing field isn’t level. Get used it.

        • Kristina Reed

          You sound kind of bitter. Like you wished you had money and could go to college but instead were forced into a life you didn’t agree with just to pay for something that rich people have.

          • CComry

            Yeah, that’s it. Wow, you cracked the case, detective.

            I made the right choice. Service to one’s country is the highest calling. I’m sorry that you hate the United States, and that you have not an ounce of patriotic pride.

            P.S. I earned my college education. You didn’t.

          • Katherine Benton

            Serving one’s country is just as patriotic as disagreeing with it. Both are ways of enabling an open discussion with a free flow of thoughts, just as this country was always intended to do. Some assumptions are unfounded, just as yours were. They are as much “typical Americans [demanding] to be served” as you were forced into the service. There is no need for such vitriol.

          • GreyWolf62

            On what planet is bitching and moaning about the American way equivalent to working to preserve it? I guess in your view, the person who receives welfare is as valuable as the person who pays for the welfare, for without the former, who would suck up the latter’s money? Unbelievable.

          • CComry

            Well put. The bleeding hearts will disrespect the military all day long, yet praise those who leech off the system.

          • CComry

            My assumptions are unfounded?

            “You sound kind of bitter. Like you wished you had money and could go to college but instead were forced into a life you didn’t agree with just to pay for something that rich people have.”

            Right. You don’t make unfounded assumptions.

          • 7shine

            Oh, how adorable. Sitting on your ass pretending online to understand finance and risk is now ‘patriotism’, equivalent to national service.

            I wish I could change the definition of words. Where did you acquire this mysterious power, miss Katherine?

            Huzzah, folks. Now none of us ever need to do anything difficult ever again. We’ll just ask the great Katherine Benton to generously redefine words so that we’re all paragons.

            Don’t flatter yourself so much. At some point, you need actual substance.

          • CComry

            I went ahead and read some of your other posts. You definitely seem like the typical anti-American, man hating lefty that is slowing squeezing the life form this country.

    • dudebrah

      Did you walk uphill both ways too?

      • CComry

        Smartass. I decided to serve rather than act like a typical American and demand to be served. Unlike you.

    • dust truck

      “You borrow money, you pay it back.” What part of Sen. Warren’s bill forgives loans? Personal responsibility is still expected, this is just a matter of leveling the playing field. If banks are able to lobby for free money from the government, why not students too?

      “Everyone should know the exact terms of the money they borrow.” Considering the lengths the banks go through to hide the actual terms of loans, or worse yet to illegally change the terms of a loan, there is nothing honest about the current state of student loans.

      You joined the coast guard, but not everyone has that option, what do you do now? Was the coast guard your career choice all along?

  • Flitzy

    I stand with Senator Warren and NOT the banks. I have no idea why banks are allowed to remain free from regulation despite causing nothing but problems for we, the people.

    Education should be a right not a privilege.

    • 7shine

      Well it appears you’re indeed in desperate need of further education. Particularly basic mathematical literacy. Try reading a book every once in a while. If you had, you might at one point have run into the concept of risk. It’s quite pertinent to interest rates, you see.

      Educate yourself and come back. You may then have something to offer besides low-quality demagoguery.

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