WASHINGTON—Arguing for what she calls a middle-class issue, Senator Elizabeth Warren today introduced legislation that would significantly drop the interest on student loans for one year while the federal government works on a longer term overhaul, which she promised to lead.
Warren, a Democrat, had campaigned heavily on the issue of student loans in her election last year and decided to make the student loan bill her first piece of stand-alone legislation in the Senate.
Federal loan rates are scheduled under federal law to double on July 1, from 3.4 percent to 6.8 percent. Warren’s bill would let students borrow instead at the rate big banks pay to the federal reserve, which she said is currently about .75 percent, between July 1, 2013 and July 1, 2014. The rates would go up again after that unless Congress acts again.
Under current law, “the federal government is 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 this economy,” Warren said on the floor today.
“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 help grow our middle class,” Warren said.
The rates on loans were supposed to double in July 2012, but Congress and President Obama agreed on a one-year extension. Warren promised in an interview that this year, another one-year fix would result in a more comprehensive strategy for student loans.
“It’s a better solution than last year” because it reduces the rate rather than holding it at 3.4 percent, she said. “Over the last year, no one worked on the permanent solution. I’ll work on the permanent solution.”
Warren said the federal government expects to make $34 billion on student loans next year, or $.36 for every $1 it lends a student. But she argued that forgoing that income, even as Congress has been focussed on deficit reduction, would be a worthwhile trade-off.
“As a country, every time we advance money to the big banks at low interest rates, we invest in those banks,” she said. “We should be making at least that same kind of investment in our students.”
Warren said college graduates carry more than $1 trillion in debt — “more than all the outstanding credit card debt in the whole country.” She warned that doubling the rate would stunt graduates’ ability to succeed financially.
In choosing student loans for her first bill, Warren is appealing to the many students and recent college graduates who helped fuel her campaign.