Elizabeth Warren: Students “deserve the same break that big banks get”

[Auburn85 434]

http://www.salon.com..._big_banks_get/

Freshman Senator Elizabeth Warren, in the first bill she has introduced in the Senate, announced Wednesday a plan to address the crisis of outstanding student debt – which topped $1 trillionthis year, with over 37 million Americans owing thousands of dollars in higher education costs that could take decades to pay back.

Student debt is now the second-highest form of debt in America – behind only mortgage debt – with the number of borrowers and the average balance increasing 70% since 2004. Researchfrom the New York Federal Reserve Board indicates that this has begun to have an impact on the broader economy, with young people burdened by student debt more reluctant to take out auto or home loans. And without Congressional action, this will get worse: on July 1, interest rates on federally subsidized Stafford student loans will double, from 3.4% to 6.8%. This will effectively raise costs for 8 million student borrowers by $1,000.

President Obama’s budget proposal would set subsidized student loan rates at 1% above the interest rate it costs the Treasury Department to borrow money for the US government. But a variable rate without a cap would come back to haunt students when interest rates rise again. Another proposal would simply freeze the current rate of 3.4%, and would institute a plan limiting payment to 10% of income over a 10-year period.

Warren’s plan takes it a step further. For the next year, she would reduce the subsidized student loan interest rate to the same rate that America’s largest banks pay to borrow money from the Federal Reserve at the “discount window.” Currently, banks pay a minimal 0.75% to borrow from the Fed, 1/9^th the rate that students would pay if Congress fails to act by July 1. Under theplan, the Federal Reserve would give the Department of Education the funds necessary to equalize those rates.

“The U.S. government invests in big banks by giving them a great deal on their interest rates,” Warren said in an interview with Salon. “We should make at least the same investment in our students.” Warren introduced the legislation in a

Wednesday morning.

This one-year stopgap, while Congress works on a permanent solution, would solve several problems. In the near term, it would save money for students, perhaps relieving some of the burden that has led them to scale back their purchases and threaten overall economic growth. In addition, the Federal Reserve has a stated policy of lowering interest rates to spur economic activity, known as quantitative easing, but they have had difficulty extending the benefits of QEbeyond Wall Street and the wealthy. Fed Chair Ben Bernanke admitted as much last February, noting in a speech that while QE has helped housing and stock markets, difficulty in obtaining mortgage credit has meant that “the strong actions taken by the Federal Reserve… have had less effect on the housing sector and overall economic activity than they otherwise would have had.” If the Fed is looking for ways for Main Street to benefit from cheaper borrowing rates, they could hardly endorse a more appropriate policy than lowering student loan interest rates in the short term to what they give out to big banks.

In her interview with Salon, Warren noted that the federal government profits from student loans. The Congressional Budget Office estimates that the government will make $34 billion in 2013, in fact. Aside from that, the investment in helping a young person afford higher education is massive in terms of their future earnings and even overall economic growth. Evening out student loan interest rates and big bank discount window interest rates simply expresses the notion that educational opportunity is as crucial to the overall economy as a strong financial system.

As expected, bank lobbyists are unhappy with the proposal, particularly the idea that “short-term” discount window loans in a time of crisis are irrelevant to student loans. Of course, many economists, including the New York Fed, believe that student debt is reaching crisis proportions. And banks have relied on that “emergency” cheap money for years. Indeed, Goldman Sachs and Morgan Stanley turned themselves into bank holding companies in 2008 expressly to get access to the discount window. As Mike Konczal argued in 2011, there’s no reason why the future leaders of America couldn’t get the same kind of “deathbed conversion.”

House Republicans stepped back from the brink in 2012, when the subsidized loan rate was set to double, patching it for a year. They could do it again, and Warren’s plan would go even further. Salon discussed the proposal with Senator Warren by phone today, including her plan to get it passed.

So this is a one-year plan?

It’s a one-year plan to give Congress time to work out a permanent solution.

And would this be your permanent solution?

Yes! Look, the U.S. government invests in big banks by giving them a great deal on their interest rates. We should make at least the same investment in our students.

So is this like a Quantitative Easing program for Main Street?

I like that, yes. The one way it’s different, though, is that it’s highly targeted. But it does link up, the Fed came out with a study in March saying that student loan debt threatens our shaky recovery. Student debt has a powerful impact on household spending. So this is about students, but it’s also about our economy.

What about the idea that offering cheap student loans contributes to rising college costs, because if a student can defer the cost they won’t care about the price?

You’re asking exactly the right question. The problem of rising college costs is part of a bigger conversation and a bigger fix. Today’s proposal is about protecting our students. So you’re exactly right about the problem. That’s just going to take a heavier lift to get to the right place. Bringing down student interest rates doesn’t fix all the problems with higher education, but it helps our students now. We should not hold students hostage to solve bigger questions.

Any co-sponsors on the bill yet?

Nope, not yet. This is my first stand-alone.

So what’s the plan to get this passed, while this sword of Damocles, this doubling of the interest rate, hangs in the balance, with a deadline of July 1?

This is grassroots federal legislation. The plan is to mobilize as many students as I can, get them to talk to their senators and representatives. When we think about, how do we get bills through Congress, we have to open up the conversation. We want students to be part of this, not to have other people making decisions for them. That’s why I’m talking to Salon, to get the word out for this. So a student can call their representative and say, we deserve the same break that big banks get. Why does America invest in big banks but charge us nine times more? That’s going to be a powerful message. If they do that, we can build support and win.

I imagine there’s going to be some education needed here, around bank lending?

Well, this one’s a pretty simple bill. The federal government lends money every single day to big banks at 0.75% interest. All I’m asking for here is that the government should float money to the Department of Education to lend the money to students.

So this isn’t direct Fed lending to students?

No, it’s not like students line up at the discount window. It’s funny that we still call it a window, isn’t it? But no, the Federal Reserve floats the money to the Department of Education.

Last time this was done, Republicans agreed not to double the rate, but there was an offset, a way that they paid for the cost to the government. Is there an offset here?

The financial treatment should be the same as there is for the big banks now. Lending to big banks is not on budget. In fact, there’s a subsidy going on from the American taxpayer to the big banks. Why should banks get it while students are asked to pay nine times more? And the other part of this is that the federal student loan program is profitable. For every dollar invested in the student loan program, the U.S. taxpayer makes another 36 cents. That’s pretty amazing. So we can do this without burdening the taxpayer in the process.

David Dayen is a freelance writer based in Los Angeles, CA. Follow him on Twitter at @ddayen.

[ToomersRevenge 284]

I don't see why not if it indeed gets sent to the DoE with explicit instructions to only be used for student loans. Otherwise it'll get eaten up like everything else.

[TitanTiger 20,708]

I like the idea. What's good for the goose....

[autigeremt 6,970]

Ha! This coming from a woman who "may have" lied about her status to get hers paid for.

[TexasTiger 13,556]

Ha! This coming from a woman who lied about her status to get hers paid for.

Credible link or delete.

[autigeremt 6,970]

Ha! This coming from a woman who lied about her status to get hers paid for.

Credible link or delete.

Really? Delete it, Tex. Go ahead. I really don't care. We all know her "story" by now and since her records are much like Obama's we will never truly know, will we? I love the "police state" in here sometimes. http://www.huffingtonpost.com/2012/05/31/elizabeth-warren-native-american-heritage_n_1558838.html

[TitanTiger 20,708]

Ha! This coming from a woman who "may have" lied about her status to get hers paid for.

Red herring. Either the idea is a good one or it's not.

[ToomersRevenge 284]

I agree with Titan. What is wrong with her idea.

[homersapien 11,812]

Elizabeth Warren rocks.

She may not be perfect, and she has undoubtedly made mistakes in the past, but anyone who dismisses her on those grounds would not be satisfied with anyone short of Jesus Christ.

Frankly, I don't understand how anyone could attack her, unless they are really on the side of huge banks and financial interests.

[TitanTiger 20,708]

She's too liberal for me on social issues, but I love her take on most financial ones.

[homersapien 11,812]

She's too liberal for me on social issues, but I love her take on most financial ones.

I don't even know what her positions are on "social issues".

(As if being robbed by financial interests isn't a social issue. )

[TitanTiger 20,708]

She's too liberal for me on social issues, but I love her take on most financial ones.

I don't even know what her positions are on "social issues".

(As if being robbed by financial interests isn't a social issue. )

You know what I mean. I'm talking about how the issues are typically discussed. I actually agree that economic/fiscal issues are social issues (even more to the point, moral issues). I'm just saying, I don't track with her on issues like abortion or gay marriage. But to me, she's bringing some hard truth on how we treat corporations and big banks vs how we treat the average citizen in this country. She sees how the playing field is tilted and not just by the nature of how much money these companies have but by policies our government has that skew the advantages even further.

[homersapien 11,812]

She's too liberal for me on social issues, but I love her take on most financial ones.

I don't even know what her positions are on "social issues".

(As if being robbed by financial interests isn't a social issue. )

You know what I mean. I'm talking about how the issues are typically discussed. I actually agree that economic/fiscal issues are social issues (even more to the point, moral issues). I'm just saying, I don't track with her on issues like abortion or gay marriage. But to me, she's bringing some hard truth on how we treat corporations and big banks vs how we treat the average citizen in this country. She sees how the playing field is tilted and not just by the nature of how much money these companies have but by policies our government has that skew the advantages even further.

Yes I did know what you meant.

Let's just hope she can effect some change regarding her positions we agree on. It's pretty obvious that's where she's focusing her attention.

[jj3jordan 2,125]

Ha! This coming from a woman who lied about her status to get hers paid for.

Credible link or delete.

Cheekbones don't lie. Liz is 1/3758943rd Indian. Give her a break.

[Grumps 3,706]

I think the focus is on the wrong issue. Is the problem student loan debt or is the problem the high cost of higher education? With a library card and some time you can access virtually all known information on the internet. Access to information gets cheaper and cheaper, yet higher education gets more expensive. It doesn't make sense to me. Are professors making WAY more than they made 25 years ago? What justifies the incredible increase in education costs?

Regarding big business vs the common man--instead of giving student the same sweetheart deal that big companies get, why not just make big companies pay "normal rates" like students do.

[homersapien 11,812]

http://www.huffingtonpost.com/2013/05/09/sallie-mae-student-loans_n_3247979.html

http://tv.msnbc.com/2013/05/09/the-tuition-is-too-damn-high/

(TIFWIW)

[ToomersRevenge 284]

I think the focus is on the wrong issue. Is the problem student loan debt or is the problem the high cost of higher education? With a library card and some time you can access virtually all known information on the internet. Access to information gets cheaper and cheaper, yet higher education gets more expensive. It doesn't make sense to me. Are professors making WAY more than they made 25 years ago? What justifies the incredible increase in education costs?

Regarding big business vs the common man--instead of giving student the same sweetheart deal that big companies get, why not just make big companies pay "normal rates" like students do.

The readily available access to loans, many of those previously subsidized by the government, has allowed tuition to increase dramatically as they knew students would be able to get access to the money easily. It's on the student what to do after that.

Just look at places like ITT Tech and Phoenix, which exist almost solely to take government loan money since the majority of their credits won't transfer anywhere and their degrees are basically useless.

[TexasTiger 13,556]

Ha! This coming from a woman who lied about her status to get hers paid for.

Credible link or delete.

Really? Delete it, Tex. Go ahead. I really don't care. We all know her "story" by now and since her records are much like Obama's we will never truly know, will we? I love the "police state" in here sometimes. http://www.huffingto..._n_1558838.html

You spread defamatory lies instead of credible arguments and decry the "police state!" Grow up. Your link doesn't even support what you claim.

[TitanTiger 20,708]

I think the focus is on the wrong issue. Is the problem student loan debt or is the problem the high cost of higher education? With a library card and some time you can access virtually all known information on the internet. Access to information gets cheaper and cheaper, yet higher education gets more expensive. It doesn't make sense to me. Are professors making WAY more than they made 25 years ago? What justifies the incredible increase in education costs?

Regarding big business vs the common man--instead of giving student the same sweetheart deal that big companies get, why not just make big companies pay "normal rates" like students do.

We've tried that, but the gravy train of loopholes just continues to happen for the "too big to fail" crowd while Average Joe gets the shaft.

[homersapien 11,812]

I think the focus is on the wrong issue. Is the problem student loan debt or is the problem the high cost of higher education? With a library card and some time you can access virtually all known information on the internet. Access to information gets cheaper and cheaper, yet higher education gets more expensive. It doesn't make sense to me. Are professors making WAY more than they made 25 years ago? What justifies the incredible increase in education costs?

Regarding big business vs the common man--instead of giving student the same sweetheart deal that big companies get, why not just make big companies pay "normal rates" like students do.

The readily available access to loans, many of those previously subsidized by the government, has allowed tuition to increase dramatically as they knew students would be able to get access to the money easily. It's on the student what to do after that.

Just look at places like ITT Tech and Phoenix, which exist almost solely to take government loan money since the majority of their credits won't transfer anywhere and their degrees are basically useless.

True.

Every student subsidy goes straight to the price of tuition.

[TexasTiger 13,556]

I think the focus is on the wrong issue. Is the problem student loan debt or is the problem the high cost of higher education? With a library card and some time you can access virtually all known information on the internet. Access to information gets cheaper and cheaper, yet higher education gets more expensive. It doesn't make sense to me. Are professors making WAY more than they made 25 years ago? What justifies the incredible increase in education costs?

Regarding big business vs the common man--instead of giving student the same sweetheart deal that big companies get, why not just make big companies pay "normal rates" like students do.

The readily available access to loans, many of those previously subsidized by the government, has allowed tuition to increase dramatically as they knew students would be able to get access to the money easily. It's on the student what to do after that.

Just look at places like ITT Tech and Phoenix, which exist almost solely to take government loan money since the majority of their credits won't transfer anywhere and their degrees are basically useless.

True.

Every student subsidy goes straight to the price of tuition.

Not true. At most state schools much, if not most, aid goes to living expenses.

http://www.auburn.edu/admissions/files/costofattendance13-14.pdf

[autigeremt 6,970]

http://www.thecollegefix.com/post/10880/

[autigeremt 6,970]

http://hotair.com/archives/2012/05/15/1997-fordham-law-article-elizabeth-warren-is-harvards-first-woman-of-color/

[autigeremt 6,970]

http://weaselzippers.us/2012/05/02/elizabeth-warren-i-only-lied-about-being-a-minority-so-i-could-be-invited-to-lunch-with-native-americans/

[autigeremt 6,970]

http://jonathanturley.org/2012/05/31/elizabeth-warren-claims-to-be-first-nursing-mother-to-take-bar/