In a move to halt rising student loan rates, Sen. Elizabeth Warren (D.-Mass.) unveiled her first bill Wednesday – one designed around giving college students the same interest rates on their federal student loans as banks do when borrowing from the Federal Reserve.
The measure would allow students who are eligible for federally subsidized Stafford loans to borrow at the same rate that banks get from the Federal Reserve when they need a short-term infusion of cash from the central bank’s discount window.
With student loans set to double on July 1 – from 3.4 percent to 6.8 percent – Warren’s proposed bill would reduce student loan interest rates to just 0.75 percent.
In order to make the bill a reality, Warren has said she’ll likely mobilize students – those obviously most affected by student loans – to help push the bill through the Senate.
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"This is about their lives and if they are active in this fight, we can make this change," Warren said Wednesday. "Every single day, this country invests in big banks by lending them money at near-zero rates. We should make the same kind of investment lending money to students, who are trying to get an education."
However, the proposal drew sharp criticism from the banking industry, many of whom disagreed with the principle’s behind Warren’s bill.
Patrick Sims, a director in policy research at Hamilton Place Strategies, argued a short-term loan from the discount window during a time of crisis is not at all comparable to a long-term student loan.
“Using something completely unrelated and feeding into populist animosity toward large banks to increase the sympathy for the student loan body or students in general, it just kind of sounds like a weird way to legislate,” Sims said. “I don’t know if it necessarily helps our student loan situation in the United States today.”
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According to the Project on Student Debt, college students who graduated in 2011 owed more than $26,000 in student loans, which Warren said is "crushing our young."
Warren, who ran for Senate promising to fight against an economic system she described as "rigged" in favor of big business, has often been a leading critic of Wall Street banks.
The freshman senator argued her legislation is intended to raise questions about why banks get a dramatically subsidized loan rate and what can be done to reduce debt burdens for students and consumers.
“If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class,” she said. “Keep in mind, these young people didn’t go to the mall and run up charges on a credit card,” Warren said. “They worked hard, they stayed in class, they learned new skills and they borrowed what they needed to pay for an education.”