Elizabeth Warren: Give Students the Same Deal As Big Banks

By Katie Davidson, Politico

09 May 13

en. Elizabeth Warren introduced her first standalone piece of legislation Wednesday, calling for the government to give student borrowers the same deal it gives big banks when they need a loan.

The measure would allow students who are eligible for federally subsidized Stafford loans to borrow at the same rate that banks get from the Federal Reserve when they need a short-term infusion of cash from the central bank’s discount window.

"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 grow our middle class," Warren (D-Mass.) said on the floor of the Senate Wednesday.

Warren is a leading critic of Wall Street banks and the freshman senator’s floor speech Wednesday showed she is looking to highlight government support for the banking industry to make the case for her other policy priorities.

The proposal drew some blowback from the banking industry.

Patrick Sims, a director in policy research at Hamilton Place Strategies, argued a short-term loan from the discount window during a time of crisis is not at all comparable to a long-term student loan.

While some people have called for higher rates or penalty rates for banks that access the discount window, the point of the funding is to prevent a liquidity crisis and is not how banks fund themselves over time, Sims said.

"Using something completely unrelated and feeding into populist animosity toward large banks to increase the sympathy for the student loan body or students in general, it just kind of sounds like a weird way to legislate," Sims said. "I don’t know if it necessarily helps our student loan situation in the United States today."

Under Warren’s proposal, the Fed would make funds available to the Education Department for one year to make loans to students at the same rate offered to large banks.

The bill would give students relief from high interest rates while giving Congress time to find a long-term solution to the increasing costs of Stafford loans, Warren said.

She noted that large banks can currently borrow from the Fed’s discount window at a rate of about 0.75 percent, but if the rate for new Stafford loans increases — as it is set to do on July 1 — a student borrower seeking a loan this summer will pay almost 7 percent.

"In other words, the federal government is going to charge students interest rates that are nine times higher than the rates for the biggest banks — the same banks that destroyed millions of jobs and nearly broke this economy," she said. "That isn’t right."

This is only the second time Warren has delivered a Senate floor speech. The first was just a few weeks ago, when she spoke about the bombings at the Boston Marathon.

The CFPB, Warren’s brainchild, is scheduled to hold a field hearing on student loans later today.

The bureau said last year that student loan debt had topped $1 trillion, and it has warned about the ripple effects on the economy if those borrowers are unable to buy a home or save for retirement.

Warren also noted the "serious risk to the recovery" that student debt poses, and said students are just as important to economic growth as big banks.

Warren dismissed the idea that the bill would be too expensive. The federal government earns 36 cents in profit on every dollar it lends to students, she said, which will bring in a total of $34 billion next year.

"We shouldn’t be profiting from our students who are drowning in debt while we’re giving great deals to big banks," she said.