College students who have borrowed money from the government to pay for their education now have a glimmer of hope as they face crippling loan balances and interest rates. Sen. Elizabeth Warren (D-Mass.) has proposed a bill, called the Bank on Students Loan Fairness Act, that will lower student loan interest rates to match those placed upon corporate banks.
To date, students have accumulated a total of $1 trillion in debt to pay for school, “more than all outstanding credit card debt,” said Warren. But here’s the kicker, students who are now paying 3.4 percent interest on their loans will have their rates doubled to 6.8 percent come July 1. The kicker to the kicker? Big banks on Wall Street are only paying about .75 percent on their government loans through the Federal Reserve Discount Window. “In other words, the federal government’s going to charge interest rates nine times higher than the rates they charge the biggest banks, the same banks that destroyed millions of jobs and nearly broke the economy,” said Warren during her proposal speech. “That isn’t right.”
As it stands, the federal government annually makes 36 cents to the dollar on student loan payments, which is about $34 billion. With students paying nine times more than the banks, when one sits down and does the math, Wall Street pays about $3.7 billion compared to the $34 billion that students pay.
Warren rightfully contends that while big banks, whose employees enjoy ridiculously high salaries for bankrupting the country, pick up the tip while students are paying the whole check. “We should be investing in our young people so they can get good jobs and grow the economy so let’s give them the same great deal that the banks get,” said Warren. Warren indicates that some say that the banks get such good deals because they “need access to ‘cheap credit’ to continue the recovery.”
Warren pointed out that the Federal Reserve, this March, said “that because of the economic impact on family budgets, high levels of student debt pose risk to our shaky economic recovery.” She then follows with a response to the Federal Reserve by saying “if the Federal Reserve can float trillions of dollars to large financial institutions with low interest rates to grow the economy, surely they can float the Department of Education the money to our students, keep us competitive, and help grow our middle class.”
She’s exactly right. Why should students on ultra-tight budgets carry a heavier financial burden when banks that, through their own fiscal foolishness, crippled the American economy, have to flip mere pocket change in comparison? The interest rates of student loans must be modified to fit students’ financial situation. In fact, actual fairness would be the students and big banks just trading interest rates. The banks can afford it.
Joshua de Leon is a writer and researcher with Ring of Fire.