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Monday, December 09, 2019 {{ new Date().getDay() }}

Why does the government give the big banks a better deal than it gives students?

It’s question so perfect that people can’t stop talking about it.

The first standalone bill from Senator Elizabeth Warren (D-MA) would not only prevent student loan rates from doubling, it would cut them down to the same rate the Fed charges banks to borrow money overnight for the next 12 months. And the idea has taken off like wildfire, with more than 400,000 people signing on to support the legislation.

Many — including Campaign for America’s Robert Borsage, who calls it “a subsidy in America’s future” — are praising Warren’s temporary proposal as a perfect short-term bailout for graduates who are suffering disportionately in our slow recovery.

But “serious” policy minds aren’t pleased, and are trying to trigger a backlash against Warren’s proposal.

“Sen. Warren’s proposal should be quickly dismissed as a cheap political gimmick,” writes the Brookings Institution’s Matthew M. Chingos and Beth Akers.

“With that mix of populist rhetoric and subterfuge, Senator Warren stands to whip up a mob of angry students (and pundits) who will demand that the government drop the interest rate on student loans to 0.75 percent,” Yahoo! Finance’s Jason Delisle. “Good luck reasoning with a mob.”

Getting a mob interested in student loan debt is exactly what Warren intended to do — and it’s working.

With more than one trillion dollars in student loan debt, the economy is increasingly stifled by the burden on young people coming to age in the midst of the Great Recession.  Immediate and decisive action is necessary.

“According to the Federal Reserve Board of New York, the share of student loan balances 90 or more days delinquent surged to 11.7 percent in the last two quarters—three percentage points higher than the same time last year—elevating student loans, for the first time, to the ignominious distinction of having a worse repayment rate than credit cards,” writes The Century Foundation’s Benjamin Landy.

And now New York senator Kirsten Gillibrand has a longer-term fix in mind that could help students at the expense of private lenders, according to the Huffington Post:

Debtors with high interest rates on their federal student loans would refinance into cheaper loans under proposed legislation to be unveiled this week, in a move that would lower borrowers’ burdens and potentially hurt private lenders and investors.

The plan sponsored by Sen. Kirsten Gillibrand (D-NY) would force the U.S. Secretary of Education to automatically refinance most government loans carrying interest rates above 4 percent into fixed, 4-percent loans. Roughly 9 of 10 federally backed loans would be affected, saving nearly 37 million borrowers billions of dollars in annual interest payments.

“At a time when corporations, homeowners and even local governments are refinancing at historically low interest rates and saving millions of dollars, students and families who take out loans to pay for college are getting left behind,” Gillibrand said. “Ensuring that our graduates are not saddled with unmanageable debt by keeping interest rates low is just common sense.”

The Center for American Progress estimates that Gillibrand’s bill would save borrowers about $14.5 billion off their student loan payments, boosting U.S. economic activity by $21.7 billion.

And thanks to Warren’s incredibly popular proposal, a simple financing bill seems moderate and entirely sensible.

The new senior senator from Massachusetts has effectively shifted the debate from whether we should help students to how much should we help them.

AP Photo/Cliff Owen

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