In the last year progressives such as Independent U.S. Sen. Bernie Sanders from Vermont and Tea Party-endorsed U.S. Sen. Rand Paul from Kentucky have blasted the Federal Reserve, the United States’ central banking system. If Tea Party and progressive types are truly independent and populist, they should support the new bill by Massachusetts’ Democratic U.S. Sen. Elizabeth Warren that would ensure that college students get equal treatment under the law for borrowing and make the Federal Reserve contribute to society, not just the rich and powerful.
The student debt is a crisis. Borrowers owe about $1 trillion in student loans, and this month’s grads face a bleak job market with an average debt of $26,000, mostly at 3.4% interest. Meanwhile, Wall Street can borrow from the Federal Reserve’s “Discount Window” for 0.75%.
According to a survey conducted by the Young Invincibles advocacy group and released by the organization Student Debt Crisis, about 15% of student borrowers said they’d been denied a mortgage because of their debt; 28% had taken on credit-card debt to continue their with loan payments; 46% dropped services like cable or Internet; and 35% borrowed from friends or family to keep up.
Why should students be crushed beneath the heels of big banks that not only profit from loaning money to students, but are the sector that caused the financial crisis with crazy, complex speculation? Because they can be victimized by those with more influence – just as rural residents, farmers, minorities and other slices of the nation have been for decades.
To prevent the doubling of the need-based Stafford Direct Loan interest rate from 3.4% to 6.8% (now scheduled to change July 1), Warren’s bill – S. 897 – would [quote] “ensure that such loans are available at interest rates that are equivalent to the interest rates at which the Federal government provides loans to banks through the discount window operated by the Federal Reserve System.”
Introduced and assigned to the Committee on Health, Education, Labor and Pensions on May 8, Warren’s proposal has just six Senate co-sponsors and it’s targeted for filibuster by the GOP or for defeat by Democrats who support Sens. Harry Reed and Tom Harkin’s stop-gap measure, S. 953, which freezes the interest rate at 3.4%. Matthew M. Chingos and Beth Akers of the sometimes-liberal Brookings Institution criticized the bill, saying, “Warren’s proposal should be quickly dismissed as a cheap political gimmick. It proposes only a one-year change to the rate on one kind of federal student loan … and does not reflect the administrative costs and default risk that increase the costs of the federal student loan program.”
But Warren – who adds that the government makes 36 cents for each $1 it lends to students ($34 billion this year) – scoffs, saying, "Some argue that it’s too expensive to keep government loans at low interest rates, but the federal government makes low-interest loans all the time – just not to everyone. The biggest banks in the country – the ones that wrecked our economy and cost millions of Americans their jobs – pay next to nothing on their debt. Students pay nine times as much."
Supporters argue that it would force the Federal Reserve – which prints its resources, as libertarian-leaning conservatives have pointed out – to make the loans instead of using taxes that citizens pay.
A statement from United Front Against Austerity, an independent, international coalition to fight austerity policies, says, “It is vital to point out that Warren's bill will not cost the U.S. Treasury or U.S. taxpayers one penny. It represents federal lending, not federal spending. It simply mandates the use of credit-creating power which the Fed has always had but has insisted using for the benefit of financial institutions only. The bill would relieve pressure on the federal budget by freeing up general revenue for other uses.”
Yes, it’d still be a LOAN, not a grant. It’s hardly radical; not like free higher education in some countries.
In addition to at least helping college students this year, it exposes the inequality in banking and the privileges of the powerful, whether Big Banks or the Fed itself.
Warren argues, “Students actually spend their loan money on surviving as consumers in a tight economy, while learning skills needed for the economy of the future. On the other hand, the already too-big-to-fail banks have used the government’s free money to become even more obscenely powerful.”
Bill Knight’s newspaper columns are archived at billknightcolumn.blogspot.com
The opinions expressed are not necessarily those of Tri States Public Radio or Western Illinois University.