Senator Warren is the only politician in DC actively fighting the student debt crisis
Massachusetts Senator Elizabeth Warren has introduced a bill to the American Senate called the “Bank on Students Loan Fairness Act.” This bill allows students to borrow government backed loans for college education at the same rate that big banks are paying.
Under this act, new student borrowers would be able to take out a federally subsidized Stafford loan at 0.75% for one year, compared with the current 3.4% student loan rate. This 3.4% interest rate means that for every dollar borrowed, there is a 36 cent profit for the government. To make matters worse, the student loan interest rate is expected to double to 7% on July 1, 2013.
Graduates are currently more than one trillion dollars in debt. This liability is higher than all the current credit card debt in the United States combined. With the borrowing rate set effectively double the cost of borrowing money for college, it would surely put added unwanted pressure on graduates trying to start their life and put a further burden on the economy as a whole.
As senator Warren points out, an interest rate at 7% would also make it nine times more than what the banks get for borrowing money from the U.S. Treasury.
“Let’s give [students] the same great deal that the banks get,” she said upon introducing her legislation on the Senate floor last week. Her premise is quite heroic since she’s protecting young adults from obtaining massive amounts of debt which prevent them from future investments such as cars, homes, and families. So far she is the only senator to address the student debt crisis.
In her speech, Warren referred to “the great deal” which is the Federal Reserve’s “discount window” that banks like Goldman Sachs and J.P. Morgan Chase use to borrow money from the government, generally overnight and supposedly secured by assets. The rate is so low in part because there’s very little risk the loans won’t be repaid. Well, these banks have been bailed out more than once, so why not help students?
There are four major differences between federally backed student loans and private student loans taken from commercial banks. These differences can be staggering.
Private loans are not as flexible in terms of repayment as compared to federal loans.
Private loans can cover up to the entire cost of tuition.
Private loans usually have variable interest rates.
Private loans usually can’t be consolidated.
These private loans are usually taken by graduate students going to medical school, law school, engineering and teaching at higher levels, in other words, those who require a higher level of learning for a more desirable salary. Either way, students should research their student loans before borrowing and know these facts.
Below is a petition supporting Warrens’ bill so that Congress can solve this huge problem (it already has 250,000 signatures). It’s not right to heap a huge amount of debt on the backs of hard working, intelligent students who need a break, particularly at the beginning of their career. These days it’s hard enough to find a job in your field of expertise, but that is another issue.