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Sen. Elizabeth Warren (D-Mass.) made waves last week when she went to bat for cash-strapped university student, introducing a bill that’d let them get federal student loans at the same dirt inexpensive interest rates as big banks.
Warren’s Count on Pupil Loans Fairness Act would lower the rate of interest on federally subsidized Stafford loans from 3.4 % to 0.75 % for brand-new debtors.
‘Some argue that it’s too costly to keep government loans at reduced interest rates, but the federal government makes low-interest loans all the time, just not to everyone,’ Warren said. ‘The greatest banks in the nation– the ones that wrecked our economic climate and expense millions of Americans their jobs– pay next to nothing on their debt, while students pay nine times as much.’
Warren is going against the grain here, specifically as Congress prepares to debate whether to double rate of interest on government subsidized Stafford loans to 6.8 % this summertime. Doing so would’ve an effect on some 8 million debtors.
But exists actually anything unique about Warren’s proposal? We couldn’t discover much.
The expense would only put on NEW debtors as well as then, the discount window just lasts for a year (she calls it a ‘1 year repair’ for the impending interest rate trip).
We are currently in a $1 trillion student financial obligation hole and today’s graduates are entering a less-than-stellar task market with an ordinary $26,000 worth of student loan debt. We bet they’d appreciate a break on rate of interest, too.
By Warren’s quotes, the government makes $0.36 for each dollar it provides to students, for a total of $34 billion this year. Providing pupils the same price cut as huge banks would level the playing industry, but the reason banks get that cushy rate in the first place is that they’re viewed as less risky debtors. That is, they are more most likely to have the funds to pay Uncle Sam back.
On the other hand, pupil borrowers have a variety of things working against them: college costs are increasing, they still can’t discharge student debt in bankruptcy, and even more than 13 % of them default on federal loans within 3 years of graduating.
It will be intriguing to see how Warren’s bill plays out. While Congress has actually consistently extended the cap on federally subsidized Stafford loans, we are uncertain they’ll want to bend as far as the consumer watchdog would like. And if they do, it’s not the kind of expense that’d actually make that deep an effect.
Watch her introduce the expense below: